Addressing Participant Longevity With Plan Design and Advice

More than half (53%) of Americans surveyed by AIG Life & Retirement said their goal is to live to age 100. However, this optimism for aging—fueled in part by medical advances and healthier lifestyles—is tempered by the financial challenges individuals may face in a retirement that could stretch 40 years or more.

Robert Scheinerman, president, AIG Retirement Services, formerly VALIC, based in Houston, says he was surprised by how many people want to live to 100. “It dispelled myths about old age and how vibrant people are for a longer time,” he says.

The Plan for 100 Survey found more than half (51%) of respondents are uncertain their current retirement savings plan would financially provide for a 100-year lifespan. Less than one in 10 (9%) are extremely confident they will have enough income throughout their retirement.

When asked to pinpoint their greatest concern about living to 100, the potential for serious health conditions (35%) topped the list, followed by burdening their family (27%) and running out of the money needed to live comfortably in retirement (25%). When considering financial concerns, generating lasting retirement income (23%) and the rising cost of health care (23%) tied as the most significant financial challenge Americans said they would face when planning for retirement. These challenges were followed by concerns about Social Security and Medicare (19%) and stock market volatility (19%).

Due to stock market volatility, 86% of respondents confessed to anxiety about funding their retirement lifestyle through their retirement account investments, which typically include stock market exposure, as opposed to a guaranteed source of income. Results show that even a little more certainty can go a long way; six in 10 said $10,000 more per year of guaranteed retirement income would help ease their minds. Additionally, 75% of survey respondents said guaranteed income every year for life would give them greater levels of happiness and satisfaction in retirement.

Finally, when asked whether they believe their current retirement savings plan will sustain them financially until the age of 100, respondents with advisers are significantly more confident than those going it alone, the survey found. Nearly half (45%) of those with advisers are very or extremely confident, compared to only 8% of do-it-yourselfers. In fact, working with an adviser allays financial fears about growing older; nearly two-thirds (64%) of respondents with an adviser say they want to live to 100, compared to only 37% of those without an adviser.

Planning for 100

The survey was conducted as part of the launch of AIG’s Plan for 100, an initiative focused on educating and empowering individuals, employers and financial advisers to help Americans prepare for longer lives and, in turn, retirements that could last four decades or more. The initiative includes the launch of a new website (Planfor100.com) and podcast series to raise awareness about the impact of increased longevity and educate Americans about potential solutions.

Scheinerman says staying healthy will help Americans with health care expense concerns.

But, the first thing plan sponsors and plan advisers can do to help employees plan for living to 100 is use smart plan design; automatic enrollment and automatic escalation makes it easy for people to build up savings. He suggests plan sponsors and advisers set a target for an ideal amount to save— 15%—but plan to get there over time to make it painless for retirement plan participants. He also notes that stretching the employer match formula can encourage people to save more.

“Good educational tools to learn about the importance of savings and how to invest, as well as access to advisers can make a big difference,” Scheinerman says. “Getting a professional to coach participants along the way is good to help them with matching health and savings with their retirement expectations.”

As for the expressed desire by respondents in the Plan for 100 survey for guaranteed income, Scheinerman says what needs to happen is first to make sure participants have accumulated enough money. Then there is a role for legislators. “RESA [Retirement Enhancement and Savings Act] is a very good first step to encourage small employers to have a plan, while also creating safe harbors for plan sponsors to put guaranteed income products in retirement plans,” he says.

Scheinerman adds that it is incumbent on employers to drive good health and adoption of retirement income, as more confident and relaxed employees will be more relaxed and productive at work.

He says employee anxiety is a motivator. It can motivate plan sponsors to look at their plan designs, offer education and offer access to advisers to help employees have more savings, “just like employees are well cared for by doctors for health.”

According to Scheinerman, one cause for anxiety may be that employees already in their 40’s or 50’s haven’t started on planning for or saving for retirement yet. He encourages that group to get started as soon as they can. “It’s often not as hard as they think. They should sit down with a professional to create a plan, and they may have to make some changes in finances. At whatever age employees get started, they need to develop a plan and have a strategy,” he concludes.

The AIG 2019 Plan for 100 Survey was conducted online within the United States by Michael Finke, Ph.D., The American College of Financial Services, in December 2018 and January 2019 among 1,012 U.S. adults ages 40 to 74 who have at least $50,000 in retirement accounts.