Fred Axsater, managing director SSgA and head of global defined contribution (DC), said that the results of SSgA’s recent DC Investor Survey found that many participants are asking if their savings will last them throughout their retirement. He observed that, since participants want an approximate 70% replacement of their income during retirement, they are very willing to embrace help from plan sponsors to achieve that.
“The process of accumulation to decumulation, from saving for retirement to generating income in retirement, has never been more important,” said Axsater. “There is definitely more focus on this as a priority.”
Jody Strakosch, principal at Strakosch Retirement Strategies, a retirement benefits consulting firm, told webcast attendees the most common question she has encountered from participants is how can they generate and secure income in retirement. “Only about a quarter of participants feel confident that they have saved enough to retire comfortably,” she said.
Dean Jarnow, director of financial products and services at Portico Benefit Services, an asset management firm, agreed that retirement readiness is very important, adding that participants need to ask questions such as what does retirement mean to them personally, and what savings and investment targets are appropriate for them to achieve.
The presenters recommended that plan sponsors: 1) Begin a dialogue with participants about retirement goals and what features they want in a retirement income product; 2) Consider providing employees who have five years or less to retirement with some income planning assistance; 3) Engage and provide support to preretirees as they transition to retirement; and 4) Consider providing an in-plan retirement income product to help participants reach retirement security and readiness.
Jarnow said one issue with retirement planning and retirement income products is that participants look at a figure in a projection and want to know what that dollar value will mean to them personally during retirement, especially in light of factors such as inflation.
Strakosch commented that people are very used to operating in a paycheck environment and that transitioning away from that during retirement can be scary for some.
Axsater said the SSgA survey found that most participants want an income product for retirement, with those featuring scenarios with high income levels being very popular. “We also found that participants are less confident of saying exactly when they can retire,” he said. “They definitely need more support from plan sponsors in moving from accumulation to decumulation.”
Control over their income is still very important to some participants, said Jarnow. “Many still try to manage things on their own, doing withdrawals and other self-managed options. Having a lifetime income stream and ceding that personal control is a trade-off for participants.”
According to Strakosch, “It can be a matter of having liquidity versus having a lifetime income stream. When looking at in-plan versus out-of-plan solutions, plan sponsors need to evaluate the goals of the plan and those of the participants.”
Axsater commented that, in addition to surveying participants, SSgA interviewed 40 plan sponsors and found that most are worried their participants are unaware of what lifetime income solutions are available.
“We also found that participants attach a high importance to generating a high income during retirement. In fact, they will often give up having inflation protection to achieve that high income,” he said. On the other hand, plan sponsors were found to better recognize the importance of inflation protection of retirement income and were not so willing to give this up.
“Educating participants on the benefits of inflation protection is definitely needed,” said Strakosch.
She also pointed out plan sponsors need to realize younger participants expect more help from their employers when it comes to retirement planning. “Plan sponsors need to take that into account and to determine what their role will be in helping people move toward retirement.”
Plan sponsors should also keep in mind, Jarnow added, that, while some participants have too little saved for retirement, some have enough but do not know it. “So education in this area is definitely needed,” he said.
Axsater said work force management has come up as a related issue for plan sponsors. “Employers will need to start figuring out how to deal with the scenario of workers not retiring,” he noted.
For more information about the SSgA DC Investor Survey, see “Monthly Income Guarantee a ‘Must Have’ for Participants.”