What It Really Means When ‘Retirement’ Is the Top Financial Concern

In April, Lincoln Financial Group promoted Jamie Ohl, who was already leading the firm’s retirement plan services business, to the role of executive vice president, at the same time appointing her to the company’s senior management committee.

In an interview with PLANSPONSOR, Ohl said this promotion came after nearly 30 years of work in the financial services industry, much of it closely dedicated to the subject of retirement plans. She said her newly expanded role allows her to ask and help answer important questions about the defined contribution (DC) retirement plan system in the U.S.—about its successes, its shortcomings and its stakeholders.

As Ohl explained, such questions drove the firm to commission and publish its latest survey report, which was revealed this week in recognition of National Retirement Security Week. Among the key findings of the survey is the fact that a majority of Americans now cite “retirement” as their top financial stressor.

“I don’t think we were surprised by the finding that retirement causes stress, necessarily, but it is interesting to see retirement at the very top of the list this year, in terms of what causes people the most financial stress,” Ohl said. “What else did they cite below retirement? Personal debt was next, followed by insufficient emergency savings, paying monthly bills, facing unexpected medical issues, affording college tuition and finally paying back student loans.”

Ohl was surprised to see student loans ranked below all these other factors in the aggregate survey data, but it makes more sense when one looks closely at the survey and the differences between the generations.

“You can see clearly that Baby Boomers are naturally more stressed about retirement and savings, while Millennials more often point to personal debt and student debt as causing the most stress,” Ohl said. “As an industry, it is important for us to think about what is concerning for our clients and how that shifts over time. We have an opportunity to think about how to address these stressors in a more sophisticated way, supporting all the generations in a targeted manner.”

The survey shows not only that the generations have different worries, but how they also face different hurdles in terms of what they have to overcome to reach financial stability and security.

“Stepping back, I would add that the industry seems to finally have gotten something very important right, which is to make sure employees are aware of how much they need to save for retirement,” Ohl said. “Another of our recent studies showed that two-thirds of people now know that they need to save at least 10% of salary annually for retirement if they hope to replace the majority of their income after they leave the work force. And 45% now believe they should be saving 15% or more.”

Just five or six years ago, Ohl said, most people had no idea that these were the levels of saving that they should be thinking about.

“So in a sense, seeing this stress about retirement is good news,” Ohl said. “People today are more informed and more aware of the long-term financial challenges they face and the opportunities they have.”

Ohl stressed that saving more for retirement “doesn’t have to be a big, involved process.” It can be as simple as cooking at home instead of dining out once a week. As the firm’s retirement projection calculator shows, that small change could generate an extra $113,000 over the typical lifetime of a 401(k) account.

“Even skipping that daily cup of coffee from your local coffeehouse could percolate into an extra $62,000 at retirement,” Ohl said.

When Ohl speaks with plan advisers and sponsors, she sees a much greater embrace these days of more aggressive iterations of automatic plan design features.

“Many plans are now starting with greater automatic deferral percentages and tying this to automatic escalation, pushing more and more people up to that 10% figure,” Ohl said.

With the strengthening of the economy and much lower unemployment, Ohl said there is strong evidence that more people are feeling financially secure for the near-term, which allows their focus—and thus their perceived stress—to move into the longer-term financial challenges like retirement.

“When we asked how financially secure people feel today, 20% said very secure, and 52% said somewhat secure,” Ohl said. “That makes a very impressive 72% who are feeling at least moderately positive about their current financial situation. This represents a real opportunity for the entire industry to take advantage of this enthusiasm.”