How to Contribute Amid Retirement ‘Challenges’
Retirement plan advisers are aware of recent dialogue about a “retirement crisis” in the U.S., sometimes getting questions from plan sponsors about how it is or is not relevant to their participants.
Plan advisers, by and large, feel the “crisis” language often used surrounding retirement security is overblown. They point, for one, to the many Americans who feel secure in their retirement plans. In addition, they note advancements and innovations in the past few decades that have strengthened workplace savings.
They also acknowledge, however, that many participants are either currently facing retirement shortfalls or may find themselves falling short if they don’t course-correct soon. Helping those people, they believe, will come from the retirement industry in coordination with policymakers. But they also put a lot of that pressure on themselves and their peers in the services and guidance they are providing to plan sponsor clients and participants.
Retirement Challenge
Jania Stout, a senior vice president in OneDigital’s retirement and wealth division, says she aligns more with the idea of a “retirement challenge,” as opposed to a “crisis.”
“Having been in this industry for 30 years, I haven’t seen individuals facing extreme hardship … due to insufficient retirement savings,” she says. “However, there are certainly people who aren’t living the retirement lifestyle they envisioned or who find themselves working well into their 60s and 70s when they had hoped to be retired.”
Stout believes the “real issue” is the millions of workers who do not have access to retirement savings programs, a challenge she believes the industry can address.
Jean Duffy, a senior vice president and financial adviser with CAPTRUST, also views the retirement situation as challenged, in part due to changes to the retirement system that have occurred in the past few decades.
“The world has changed,” Duffy says. “People do have to be responsible for their own retirement plans, and we have to help them.”
She says the status of retirement security depends in large part on “who you are talking to.” She notes that some current retirees are set up well with a combination of workplace pensions, defined contribution savings and Social Security. Meanwhile, younger generations are familiar with workplace savings programs and have access to financial wellness programs and education.
The most challenged group, she believes, are those within five to 15 years of retirement, who fell between the age of pensions and DC plans.
“People closer to retirement are probably the ones that are going to be the most challenged,” she says. “We have a tsunami of retirees coming at us every day—that’s a lot of people who are going to enter the world of retirement, and as an industry, and a consultancy, we need to deal with that.”
One way the industry can help, Duffy says, is by continuing to push for greater savings deferrals in workplace plans. She advocates with her clients to institute automatic enrollment rates of 6%—instead of 3%—and automatic increases that go up to 15%.
Another area for improvement is more personalized financial education and budgeting, particularly when it comes to creating a consistent stream of retirement income. In her practice at CAPTRUST, Duffy says, they hold retirement readiness seminars for participants that go over ways to set up a steady stream and how to combine that with Social Security and Medicare.
“The No. 1 thing that an adviser will ask you is: ‘How much money do you need [per] year?’” she says. “If you tell me you want to travel four times [per] year, then we need to take one approach. If you say you are going to live in a cabin and go hunting and fishing for food, then we can plan for [less] income replacement.”
Education, Communication
Chad Goerner, a senior vice president, corporate retirement director and senior institutional consultant with RBC Wealth Management, points to the “significant contribution” that the U.S. retirement system has made in setting up Americans for the chance to retire on time. He sees the focus now on putting those tools such as the 401(k) and planning tools to work.
“It is our job as advisers to work with plan sponsors to find effective ways to use the tools we have through plan design, effective communication and investment management to address the needs of plan participants,” he says.
While auto-enrollment and auto-escalate features have been effective in getting people to save, Goerner calls that just “part of the playbook in the retirement savings game.” He stresses that plan sponsors need have their own education and communication programs for participants and not just rely on programs teed up by plan recordkeepers and providers.
“We quarterback the design of custom education programs in conjunction with the plan provider and measure results each year,” Goerner says of RBC’s advisory practice. “This way, we can begin to see measurable improvements.”
Advisers can also play a role in showing plan sponsors the long-term benefit of investing in education and communication for employees.
Stout of OneDigital says her team hosts a “retirement journey” series for participants that gets thousands of attendees to think about their retirement. Those series focus in part on budgeting, she says.
“While it’s not the most exciting topic, it’s crucial for ensuring financial security in retirement,” Stout says. “Additionally, we provide education to pre-retirees on the emotional aspects of retirement—a topic that doesn’t get nearly enough attention, but it’s one of my favorite areas to cover.”
New Retirement Reality
“While ‘crisis’ may be a sensational term, there are certainly valid concerns surrounding the concept of ‘traditional retirement’ as we know it,” says Craig Stanley, a financial adviser and the lead partner for retirement plan consulting in Summit Group 401(k) Consulting, an Alera Group company.
Stanley points to the “changing nature of retirement itself” due to people expected to live well past the traditional retirement age of 65. This longevity may mean people need to consider ‘hybrid’ retirement, in which they take on reduced work schedules instead of full retirement.
“While this shift can be challenging to embrace, it’s something we discuss with employees during one-on-one sessions to help them broaden their view of what a happy, healthy retirement could look like,” he says. “Ultimately, the biggest challenge ahead might not be financial, but cultural: society’s willingness to accept a new, more flexible definition of retirement that aligns with modern realities.”
He also speaks with clients about the potential “uncertain future” of full Social Security payments being counted upon as part of their retirement income planning.
“With the projected insolvency date of 2033 fast approaching, it’s important to prepare employees for the possibility that Social Security may not be as dependable as it once was,” he says. “Encouraging individuals to plan conservatively by setting realistic savings targets, without heavily relying on Social Security, is crucial.”
Goerner of RBC says plan advisers must also be tuned into the future of retirement planning and education in order to take advantage of innovations and developments as they arise.
“Retirement income and managed account solutions are important areas of discussion that advisers must be well versed in, as they will most likely be the next frontier in improving participant outcomes,” he says.
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