Retirement Income: Believable Solutions for Participants

September 17, 2012 ( – Plan sponsors and providers should provide believable retirement income solutions for participants.

This was the message from Sherrie Grabot, CEO of GuidedChoice, speaking at the Plan Sponsor Council of America’s (PSCA) 65th annual conference, Reframing Retirement.   

Grabot noted that the traditionally touted 4% spending in retirement rule does not always work: For example, in an inflationary period (see “Research Cautions Against 4% Spending in Retirement Rule”); taking from a single retirement savings account at a time also might not work—participants need to consider all sources of retirement income; and annuities have had a bad reputation with participants because they can be confusing.   

She suggested that a solid solution focuses on a monthly income amount. Participants need to know how to maximize Social Security, and this needs to be a part of participant education. A solid solution considers a retirement spending pattern, because retirees are not spending the same throughout their retirement; and a solid solution must consider taxable income and tax efficiency, showing the income difference made by taking certain assets at the right time. 

“People spend more when the economy is good and spend less when not,” Grabot noted. She contended that if retirement plan participants are shown that if they spend less when the economy is good and reinvest their extra income, they can level out their income in retirement.  This should also be a part of participant education, according to Grabot.  

Of course, all of this should be presented to participants in simple, basic language, she said.  

She added that plan sponsors should drive providers to build retirement income solutions that take all these factors into account.