Looking for a Helping Hand

How plan sponsors can help pre-retirees feel more secure about their impending retirement
Diane Gallagher

Are your plan participants approaching retirement age actually going to retire when they turn 65? Increasingly, at employers all over America, the answer to that question is no. Although many Americans would like to retire or at least start cutting back on work at that age, they cannot afford to. Diane Gallagher, Vice President, defined contribution investment only (DCIO) practice management at American Century Investments®, spoke with Alison Cooke Mintzer, Editor-in-Chief of PLANSPONSOR, on how these plan participants nearing retirement age feel about their efforts to save and their employers’ help along the way.

PS: In your recent research of how pre-retirees—those age 55 to 65 and employed full-time—feel about their retirement readiness, what did you find to be the most significant results?

Gallagher: There are three major findings in this research. First, this group of working Americans has serious regrets about their savings efforts over the course of their careers. The biggest barrier to saving was the perception that they couldn’t afford it.

A second major finding is really about redefining affordability and helping people make solid spending choices early on. They told us, “I wish I could talk to my younger self about the decisions I was making.”

Finally, the third thing was not a surprise to anyone who works with defined contribution (DC) plans: Plan sponsor decisions have significant influence. Plan structure, design features, services and communication programs matter greatly. What participants can and can’t afford comes down to household budgeting. This group of pre-retirees needed help with budgeting and overall financial wellness.

Historically, the industry has put significant effort into communication and education programs for DC plans. Traditionally, those campaigns have focused on investing and the value of the employee benefit. We really need to teach people how to budget to make sure that there’s a little left over to save. Pre-retirees told us, “I would have made different spending choices. I wish I would have known the impact those decisions would have made on what I have saved today.”

PS: Were there any other barriers to pre-retiree success?

Gallagher: There’s a list: They didn’t earn enough, they just put it off, they were trying to pay off debt first, or they were spending on more immediate needs. Daily life got in the way.

Saving for the future is the easiest thing to put off.

You can’t put off a mortgage payment. You can’t put off buying your kids shoes that fit. Someone in their 30s might believe, “I can wait a little bit on this.” The reality is they can’t. More than a quarter of participants in our study said they didn’t start saving for retirement until they turned 40, that’s a lot of time to make up.