Data & Research June 21, 2018

Most Retirees Only Withdrawing Required Minimum Distribution

A mere 21% feel confident about drawing down their retirement plan assets, Ameriprise Financial found in a survey.

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Sixty-eight percent of retirees are only taking the required minimum distributions (RMDs) from their retirement accounts, Ameriprise Financial found in a survey of more than 1,000 retirees with at least $100,000 in investable assets. Only 21% feel confident about taking money out of these accounts.

“After working, saving, investing and making sacrifices for decades to build a nest egg, transitioning to spending can be challenging,” says Marcy Keckler, vice president of financial advice strategy at Ameriprise Financial. “Retirement requires individuals to think differently about money. Having a plan in place to manage their finances can help retirees feel confident about spending their assets and address the fears that may be holding them back.”

The survey also found that the median savings these retirees have is $839,000. However, 25% said they were not sure if their retirement savings will last throughout their lifetime. The survey also found that 25% fell short of their retirement savings goal by $250,000 or more.

Fifty-nine percent believe that while managing investment risks and returns is complex, it is the first step they are taking to make their money last. Their second step is to turn to advisers. Reducing debt and doing research on investing tie as the third step they are taking.

Seventy-two percent say that pensions and 71% say Social Security are important to their retirement income. Seventy-six percent are receiving Social Security benefits, and of this group, 49% claimed the benefit between the ages of 62 and 64. Thirty-four percent of those who are not yet taking Social Security benefits do not know when they will start, while 20% of this group say they will start between the ages of 62 and 64, and 21% say age 70 or older.

Fifty-three percent say understanding the tax ramifications of drawdown strategies is complex, and 46% say establishing a retirement income plan is challenging.

“Retirees may miss out on the full and rich life they dreamed of by not spending the money they worked hard to accumulate,” Keckler adds. “A financial adviser can help retirees develop a strategy to withdraw their assets effectively so they don’t outlive their money.”

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In Practice June 21, 2018

PSNC 2018: Educating Participants on Plan Data

Plan sponsors have a duty to alert and inform participants of any data changes, and ensure they are receiving the right education on it. 

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Capping off the final day of the 2018 PLANSPONSOR National Conference, two industry leaders explained the exact significance behind each workforce’s retirement plan, thanks to the wave of data collected in today’s world.

Barbara Delaney, principal at StoneStreet Renaissance, provided details of a 2016 J.P. Morgan Consumer Expenditure Survey, showing how common human behavior connects to life expectancies. For example, specific intakes of alcoholic beverages, such as moderately drinking wine throughout a week, was found to shorten life expectancies. Those lacking a financial savings plan, she said, lived seven years’ less on average.  

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“We as a country are aging, and we don’t recognize that we’re aging,” she said.

As life expectancies decline, the percentage of workers retiring at 65 is increasing. According to the J.P. Morgan study, in 2017, 67% of workers were expected to retire at 65. Now, that number has swelled to 75%. Delaney credits this to sickness or taking care of spouses.

Because of spending changes as participants rise in age—such as a decrease in average household spending—anxieties over retirement income are very well prevalent among new retirees, or those on the cusp of retirement. To withhold participants from beginning their Social Security withdrawals, Delaney recommends plan sponsors utilize tools, such as retirement calculators, to prove that participants won’t be at a loss for money.

“Majority of Americans are taking Social Security way too early, thinking they’re going to pass,” she said. “Truth is, they’re not. There’s ways you can show participants how to build income during those gap years.”

Delaney said participants should not be wary when it comes to spending 401(k) savings. Employees dedicate years to accumulating savings, therefore it only makes sense to spend it, as long as it’s appropriate.

“People in America know how to save, but they’re afraid to touch their 401(k) plan. We engrave that into their heads during retirement saving,” she said.

Unsurprisingly, according to the J.P. Morgan study, the only spending increases retirees had faced were healthcare and housing, excluding mortgage.

For plan sponsors looking to share comprehensible data with participants, Julie Doran, senior vice president of retirement plan advisory at Sentinel Benefits & Financial Group, advocated for employers to team with industry professionals. Plan sponsors can engage with partners, recordkeepers, and even advisers to work through large data.

“You can work with those groups to make the most impactful change,” she said.

Speaking of sharing data to the right professionals, the subject of cybersecurity and ensuring protected plan data was also discussed in the panel. It would be in the best interest of the plan, and the employer, to discuss what cybersecurity measures are being implemented by the adviser, Doran said.

“As fiduciaries to the plan, you want to make sure to go to your adviser and ask what they’re doing about cybersecurity. That is something you should be asking for and something they should be willing to give,” she said.

Among common financial stresses are student loans, and the anxieties that come with trying to save for retirement, while paying debts. Doran mentioned how collecting this data from participants, such as how many workers are currently carrying student loan debt, can end up assisting the employees. Plan sponsors can, in return, construct an accommodating plan design, specific plan education or even incorporate benefits, such as student loan assistance programs.

“From a data perspective, there are all these external factors that come in place. That student loans perspective Is important because you want to make sure plan sponsors are accommodating those employees,” she said.

On the subject of target-date funds (TDFs), Doran and Delaney said plan sponsors can take data to investment committee members, to consider right solutions, default options, and whether a plan is offering the right target-date series.

“You need to identify the population and see if that population is in tune with that fund philosophy,” said Delaney.

Other than providing education and speaking with committee members, advisers, recordkeepers, and plan sponsors can gauge how participants’ comprehend this information, so that employees can recognize specifics of the plan and its data.

“Understand the demographics of your plan. Break it into different groups, and see based on age, how they respond to that data,” said Doran. “Tailoring the medium and message to these populations is a great place to start.”

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