T. Rowe Price is offering a new retirement planning tool that will allow its 2 million 401(k) participants to plug in the amount of their savings and how it's allocated to determine -- based on current returns -- how much money they are likely to have available to pay themselves a monthly amount at retirement. Participants are able to see what happens if they increase their contributions or revise their allocation choices.
For instance, for the purposes of illustration, T. Rowe Price shows a saver with $220,000 invested in a relatively conservative mix of stocks and bonds receiving a theoretical payment of $775 per month from age 65 to 95. This "person" could decide to take more investment risk in order to receive more return. Or he could simply opt to take out more money and hope he's dead before he's broke.
T. Rowe Price says it already has some retirees who are using this tool to manage their withdrawals. They select an investment strategy -- one that they develop or one that is developed by T. Rowe Price financial planners. Based on their selections, T.Rowe Price sends a monthly or quarterly check or direct deposit.
The tool allows participants to manage their taxes and monitor the estimated amount of time they'll continue to receive this payment. If their nest egg takes a nose dive, they can make a correction in their withdrawals, investment strategy or both.
Tools like this aren't widely available yet, but they will be as millions of us begin to stumble through the process of figuring out how to pay ourselves a monthly living allowance. T. Rowe Price anticipates rolling out this tool to the rest of its customers soon. Rachel Weker, manager of marketing technology and product development for T. Rowe Price Retirement Plan Services, says, "I think people are looking for help as they move into a phase of their life that hasn't been done before -- previously people had pension plans and they didn't expect to spend 30 years in retirement."
Weker says one of the side effects of making this tool available is the number of participants who have done the calculations and upped their savings as a result. "People look at it and they know they can't live on $250," she says.