By Mark Iwry and Bruce E. Wolfe

Young adults looking to see how much income their 401(k)s will generate in retirement are often surprised to see how little the number is. What they don't know is that the number is woefully misleading.

Research suggests that savers receiving estimates of how much retirement income their plan will provide (together with other retirement-planning information) tend to be more satisfied and confident financially and to increase their retirement-savings contributions.

Under the 2019 Secure Act, 401(k) benefit statements are required to provide future income estimates annually for a retirement saver and spouse assuming a retirement age of 67.

That's better than nothing. But we believe the current regulation omits key elements that would reflect a more-realistic level of future retirement income and motivate many more individuals to save for the long term.

Artificially low estimates

The retirement-income estimates that 401(k) plans are legally required to provide are based on your current account balance. It's as if you and your employer stopped contributing to your account at the moment that estimate was made, rather than the reality that you likely will continue making contributions until you actually retire.

That means people in their 20s or early 30s, with decades of saving ahead, see only an artificially low estimate of their future retirement income — based on their current savings without any increase for future contributions and investment returns.

This unexpectedly low income estimate could surprise and discourage younger savers in particular, who might then reduce their saving rate or stop saving altogether, as they don't see the rationale for making financial sacrifices now for a marginal payday starting at retirement. We acknowledge that some others might see the low estimate as a catalyst to invest more. But either way, the information they are getting is incomplete.

A 31-year-old investor with a $75,000 salary and a $60,000 401(k) balance, for example, would still have 36 more years to continue contributing (at an assumed contribution of 5% of pay) and ideally benefiting from market returns before retiring. But the current required income estimate assumes none of that. In this case, the current balance would translate into roughly $4,000 of annual retirement income.

That's not very impressive or motivating.

But if you add the future contributions and return assumptions to the estimate, the projected annual retirement income increases more than 10-fold to over $40,000. And that's without taking any salary growth or employer matches into account. We recognize the impact of adding these assumptions will be sensitive to age and other factors that vary from person to person. Still, adding them is sure to have a meaningful impact.

Still not the standard

It's true that many 401(k) plans and providers do go beyond the legally required minimum — projecting continued contributions and investment returns (as well as salary growth).

Some even offer online tools, such as sliders that enable savers to do their own projections and gauge the effect of varying the assumptions. For instance, how much could my estimated retirement income increase if I raise my saving rate 2 percentage points? Retire a year later? Invest differently?

These tools are great, even though they're mostly used by people close to retirement rather than younger savers.

But the first step needs to be a legally required standard set of realistic projections on the benefit statement. These should include continuing contributions, investment returns and salary growth assumptions to ensure all 401(k) participants receive annually a more useful retirement-income projection. That way, every worker will have access to the same useful information, regardless of the employer or retirement-plan provider.

Ultimately, these projections should encourage savers, especially younger ones, to conclude that sacrificing to save now will be worth the journey decades down the road.

Mark Iwry is a senior fellow at the Brookings Institution, visiting scholar at the Wharton School and formerly senior adviser to the Treasury Secretary for retirement and healthcare policy. Bruce E. Wolfe is a principal at management consulting firm C.S. Wolfe & Associates. Write to reports@wsj.com