Longevity, Early Retirement Pose Savings Challenge

Americans will be living longer in coming years, but they may not necessarily be working longer to earn income for those additional years of living.

That’s one of the takeaways from a financial resilience and longevity report from John Hancock Retirement that draws on its U.S. retirement plan participants and a separate panel of retirees.

According to the study, 62% of retirees surveyed left the workforce sooner than expected, both shortening their time to save in a workplace plan and extending their financial needs in retirement. While the survey showed that workers expect to work four more years than they would like to, in part to save more for retirement, the findings also showed that the choice may not fully be in their hands, says Wayne Park, CEO of John Hancock Retirement, which is part of Manulife Investment Management.

“You’d like to think people are retiring earlier for good reasons, but that’s not always the case, unfortunately,” he says. “It can be employment reasons or health issues.”

Among those who retired earlier than planned, 72% wish they had saved more before retiring, according to the study. That compared with 47% who wish they had saved more, among those who retired at their planned date.

Park says these earlier retirements, combined with longer life spans, should spur the retirement industry and employers to focus on helping people maximize their working years to save and be prepared for retirement.

Five A’s

Wayne Park

The retirement division CEO breaks down key areas of support into five “A’s”:

• Retirement plan access;
• Automatic plan design elements;
• Activating participant engagement;
• Investment alpha; and
• Financial advisement.

On the first point, Park says, the industry must keep trying to extend employee access to tax-advantaged retirement saving plans, an area the SECURE 2.0 Act of 2022 sought to address through tax incentives and other provisions.

Second, he notes, is continuing to implement automatic enrollment and automatic escalation within those plans to get people saving, something also being supported by legislation.

The third area, however, is trickier: getting participants to engage and proactively manage their savings.

“At some point, you can’t auto-everything,” Park says. “What we see, even from our own communications, is that those [participants] that at least open the emails or have some engagement prove that they’re better off in their savings and that they certainly have a higher savings rate.”

Park says spurring and keeping engagement is a key focus for John Hancock as a recordkeeper, but also in conversations with adviser intermediaries. He notes that John Hancock Retirement, unlike some recordkeeper competitors, does not offer advisement and sees itself as “the partner of choice” for advisers in working with plan sponsors and participants.

The fourth area Park points to is giving participants a strong investment strategy, both in terms of growth and allocation catered to their personal needs.

Finally, he individual plan advisement is key not just for the wealthiest savers, but for participants of all income levels.

“It’s not something we see a lot of in-plan right now, but we hope to see increases in advice,” Park says.

According to John Hancock’s survey, about 80% of participants with an adviser said they were in a good financial situation, compared with 52% of participants without an adviser. Meanwhile, having a comprehensive retirement plan appeared to bolster financial sentiment, with 78% of those with a plan reporting a strong financial situation, as compared with 54% who did not have one.

Help, Please

Park acknowledges that those findings may be skewed because people with the means to hire a financial adviser also tend to have better financial situations. However, he believes advancements in technology have expanded the pool of people with whom advisers are working and are willing to take on as clients.

“Even if it’s not the official definition of advice, [employers] can offer some sort of help, whether it’s content, rules of thumbs or creating engagement,” he says.

Meanwhile, he believes employers are able to provide more education and guidance via tools and resources from the recordkeeper or adviser working on the plan.

Park’s five elements for helping participants certainly seem to be needed, according to the study.

When survey respondents shared their retirement preparedness across the generations, the results were low. Just 36% of Baby Boomers said they are prepared, while 27% of Millennials and Generation Z feel on track, and 26% of Generation X feels ready.

John Hancock’s survey on financial resilience and longevity was fielded in June and was made up of 2,623 John Hancock plan participants and 525 retired Americans.

John Hancock Retirement is focused on researching and solving for longevity and retirement, having this year signed a five-year contract with the Massachusetts Institute of Technology’s AgeLab for projects, including the creation of a Longevity Preparedness Index.