Nearing Retirement, and Worried the Money Will Run Out

Many survey respondents say they wish they had made smarter financial decisions earlier in their career, including saving more of their paycheck (47%) and investing their savings more aggressively (34%). These regrets underscore how important it is for employees, with support from their employers, to start thinking about retirement planning early and remain engaged in the process throughout their careers.

Forty-five percent of respondents ages 55 to 64 say financial readiness is the most important factor in determining when they will retire. Yet these individuals haven’t always taken advantage of many common retirement planning and saving strategies that could help them feel financially prepared. Only 35% say they saved in an individual retirement account (IRA) or met with a financial adviser; 32% have calculated the income they would need for each year of their retirement; and 12% have saved in a health care savings account.

Not making the most of these options leaves many Americans feeling uncertain about their financial futures, with 68% of those approaching retirement saying they are unprepared for what lies ahead.

Plan sponsors need to understand who employees are, how to reach them, and what they need to know to take action, says Ben Lewis, managing director of TIAA-CREF. “Examining the retirement behavior of different demographic groups can help you understand your employees’ needs,” he tells PLANADVISER.

For example, Lewis says, survey results from earlier this year show that Generation Y employees are significantly more likely to have changed how their money is invested in the past year (59%) than those 35 years or older (42%). “As a result, sponsors may want to reiterate the importance of rebalancing with workers 35 years or older while working with Gen Yers to ensure that the choices they are making are the right ones for their life stage,” he says.

Targeted Messaging

Plan sponsors can look to different demographics to determine how best to tailor their messaging. According to Lewis, a survey of younger Americans ages 18 to 34 found most of them (79%) said it would be helpful to have advice that is personalized for their particular life stage. This generation is more likely to value online tools and calculators (74% vs. 57% of the general population), seminars (68% vs. 53%) or webinars (67% vs. 54%) as channels for financial information and advice, TIAA-CREF found in its research.

Lewis points to TIAA-CREF research that shows going online is just the start to reaching Generation Y savers, and it can be helpful to include the following engagement methods to get younger participants on the road to saving:

• Peer learning and interaction;
• Offer customizable tools and resources, such as calculator;
• Keep the tone entertaining and fun;
• Utilize online, social and mobile platform; and
• Address Gen Y-specific challenges, such as the issues that aging Baby Boomers issues they face.

Communications should focus on encouraging employees to take three actions, Lewis says. “Enroll in the plan, increase contributions every year, and check asset allocations every year to rebalance if necessary,” he says. “Communications programs will benefit from the “4 Cs”: continuous dialogue; segmented, needs-based content; channel of choice; and a consultative approach.”

TIAA-CREF’s research on older workers reinforces the idea that preparing for retirement should not be a sprint to the finish line, but a long-distance run that requires careful planning throughout an adult’s life, according to Teresa Hassara, executive vice president of TIAA-CREF’s institutional business.

“This will help prevent those nearing retirement from feeling like they have to play catch-up near the end of their careers,” Hassara says. “Developing and acting on a carefully constructed plan can help individuals at any age build a financially secure future.”

Worries Abound

According to the survey, financial challenges make up three of the top four concerns for individuals closing in on retirement. Many worry about inadequate resources to cover monthly expenses (45%), while others are anxious about how health care costs (35%) or inflation (32%) could deplete their retirement savings. However, despite these concerns, only 10% of this age group has purchased an annuity, the only retirement product that guarantees an income stream for life, TIAA-CREF says.

The firm notes that according to the Social Security Administration, a 65-year-old male in 2010 could expect to live an average of another 17.57 years, while a woman of the same age could expect to live an average of another 20.20 years.

These challenges are leading some to reconsider what their retirement will look like. Forty-two percent of survey respondents ages 55 to 64 say they plan on working a part-time job during retirement, 39% say they'll be more conservative about how much they spend on entertainment and other luxuries, and 23% say they will downgrade their living quarters to something less costly. These realities may conflict with their desire for flexibility to do “what they want, when they want” during retirement, which 57% of this group says they are most looking forward to in their retirement years.

“If Americans find that their retirement savings aren’t adequate to meet their expectations about retirement life, it’s never too late to make adjustments,” Hassara says. “In fact, if a 55-year-old starts to max out his or her employer-sponsored retirement plan contribution next year and continues to do so for the next 10 years, those savings could grow to about $325,000. Employers and financial advisers can work with individuals to develop a robust retirement plan at any life stage so they can pursue the kind of retirement they envision.”

The Ready to Retire Survey was conducted by KRC Research online between May 19 and May 28 among a sample of 1,000 employed adults, ages 18 years and older, currently contributing to an employer-sponsored retirement plan. Data was weighted by key demographic variables to ensure the sample is representative of the employed population contributing to defined-contribution plans. Respondents for this survey were selected from among those who have volunteered to participate in online surveys and polls.

More information about the 2014 TIAA-CREF Ready to Retire Survey is available in the executive summary on TIAA-CREF’s website.