Client Service

Addressing Longevity a Crucial Issue for DC Plan Sponsors

DC plan participants need education about how much they will need to fund a 20- to 30-year retirement, and plan sponsors need education about the role of annuities.

By Rebecca Moore | February 23, 2017
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Americans are living longer, but many do not have adequate savings to provide for a 20- to 30-year retirement.

A study from the Indexed Annuity Leadership Council (IALC) found one in four Baby Boomers has less than $5,000 saved for retirement and nearly one in four (24%) of all respondents had nothing saved for retirement.

Jim Poolman, executive director for the IALC, who is based in Bismarck, North Dakota, says the study also found that 60% of Baby Boomers think they will need less than $1 million for retirement, yet, he notes, estimates show they could spend up to one-quarter million on health care costs alone.

“People aren’t thinking about the extra costs needed due to living longer,” he says. Poolman suggests that is the number one thing retirement plan sponsors and advisers can do to help employees prepare for longevity— educate them about how much money they will need. “Part of the reason people are not saving enough is they are not educated about what they’ll need,” he contends. “They need to know they will spend one-quarter million dollars on health care."

Fredrik Axsater, global head of Defined Contribution at State Street Global Advisors (SSGA), who is based in San Francisco, says plan design features such as automatic enrollment at a reasonable default savings rate (he suggests 6%) plus an employer matching contribution have been good at helping people save and save more. But, he also thinks education is key.

“Provider should show how participant account balances translate into monthly income on retirement plan statements,” Axsater says. “The account balance tells them nothing. It’s not fancy, but it’s a basic indication of how they are doing.”

Axsater adds that SSGA sees in its research more retirement uncertainty for Generation X. “They need to do something now because they still have more time for retirement savings,” he says. 

Poolman suggests plan sponsors and advisers provide participants with proper retirement calculators to educate them. He also suggests yearly checkups—a one on one with a representative of the plan sponsor or with an adviser to see how the participant is doing, motivate him or her to save and provide education about how much they’ll need.

In addition, Poolman says, “As employees get older, investment goals change, risk tolerance changes, and employees are not getting that education on a frequent enough basis. It is incumbent upon employers to do that. They don’t want employees leaving and having bad feelings that the company did not provide for them.”

NEXT: Getting healthy and retiring later