For over 20 years, the retirement industry has seen an accelerated evolution, adapting to keep pace with the changes in the financial complexities facing American workers. Most recently, evolution has shifted more specifically to retirement income – for a few reasons:
While the number of people facing retirement is at an all-time high, planning for retirement income and safe spending has been a gray area for a long time. Looking back as far as the Employee Benefit Research Institute (EBRI)’s 1996 Retirement Confidence Survey, only 33% of respondents felt they’d determined an accurate figure to live comfortably in retirement. In our own 2021 research, we asked a similar question: How confident are you in your ability to calculate your spending needs in retirement? Only 13% indicated they were “completely confident.”3
It’s because of this persistent confusion that we created the first holistic, in-plan retirement income solution 10 years ago. Since then, we’ve gained significant insight into what people value and need for a long-term retirement income plan and investing strategy:
Consistency and Safety of Retirement Income
One of the biggest concerns that people have planning for retirement is outliving their savings, with 60% stating that running out of money is one of their biggest worries.4 Knowing that, it’s no surprise that 75% of workers say income stability is a higher financial priority in retirement vs. 26% who cite maintaining wealth.5 It’s crucial for this group to develop and understand their retirement income plan – ideally with professional help.
While consistent income is essential, flexible investing strategies and payout options are also important to accommodate shifting needs in retirement. Ninety-one percent of near-retirees have said having flexible payout and investing strategies is important.6 And 90% + of near-retiree managed account members enrolled in our latest retirement income service selected a flexible portfolio allocation that has both growth and income.7 Life doesn’t stand still after retiring. Retirees need to be able to accommodate life changes as needed – having the ability to change course is invaluable.
Advice From a No-Conflict Advisor
Most participants are not equipped to plan for retirement on their own. Having available expertise and guidance from an advisor who is free from product conflict helps influence better decision making and planning. When it comes to retirement income, 63% of those working with an advisor or planner indicated that they were “very confident or 100% confident” in their ability to calculate their spending in retirement vs. 40% of those who are not working with an advisor.3 However, only 22% of employees have a professional financial advisor,8 highlighting a gap in needs being met.
Combining all sources of income into one cohesive plan addressing all financial needs and scenarios is critical to retirement confidence. Participants have indicated two key areas where they want support – 92% value help with preparing for health care expenses, and 66% want budgeting help as part of the retirement income planning process.6 Participants also want scenario planning, with 89% of near-retirees indicating this is important.6 Having a comprehensive plan that accounts for every nuance and different scenarios gives participants confidence in their retirement income.
Solve Challenges for Near-Retirees
With 55% of near-retirees feeling only somewhat confident or less in their ability to calculate their spending needs in retirement,3 there is an opportunity for plan sponsors to create clarity, boost confidence, and help participants retire on time.
Employees place a lot of value on their employer’s help in obtaining financial advice – and most say getting it on their own has proven to be “out of reach” because of cost (21%), lack of trust (12%), or because they feel they don’t have enough money to qualify for help (16%).8 There are key considerations for plan sponsors when offering solutions for their near-retiree population:
- A personalized, flexible experience
Flexibility and customization are needed while transitioning to retirement. And participants expect it – 73% of employees expect their financial management apps and programs to tailor experiences based on what they know about them.9 Having flexibility helps when things don’t go as planned. For instance, half of workers expect to gradually transition to retirement. In reality, only 19% of retirees report doing so, while 73% have a full stop.
- Support beyond allocations
An investment strategy is just one piece of the retirement puzzle. Older workers and retirees need specialized support, whether that’s through planning tools, one-on-one interaction, or education. Planning and decision support are critical elements to a successful retirement that are often overlooked.
- No conflict advice
Providing access to trusted advisors who don’t sell proprietary products can instill confidence and help employees put a plan in place. Advisors who don’t work on commissions can put both sponsors and participants at ease that the guidance being provided is truly in the participants’ best interest.
- Comprehensive income planning
Retirement income planning is often more than just looking at retirement savings accounts. Helping participants consider the impact of taxable accounts or spousal information within different scenarios is crucial to accurate planning.
In today’s environment, there is no universal solution for participants approaching retirement. Offering a wide range of flexible, personalized services from a trusted resource gives employees peace of mind and gives you the confidence that your workforce can retire on their terms.
About Edelman Financial Engines
Edelman Financial Engines is committed to acting in the best interests of our clients. We were founded on the belief that all American investors – not just the wealthy – deserve access to personalized, comprehensive financial planning and investment advice. Today, we are the nation’s No. 1 independent financial advisory firm11 with 150+ locations across the country and entrusted by 1.3 million clients to manage $289 billion in assets.12 Thousands of America’s employers have entrusted Edelman Financial Engines to provide financial help to 10.6 million participants. Our unique approach to serving clients combines our advanced methodology and proprietary technology with the attention of a dedicated personal financial advisor. Every client’s situation and goals are unique, and the powerful fusion of high-tech and high touch allows Edelman Financial Engines to deliver the personal plan and financial confidence that everyone deserves.
Please contact Edelman Financial Engines if you’d like to learn more about our research or retirement income service solutions.
1 2020 Census Will Help Policymakers Prepare for the Incoming Wave of Aging Boomers – United States Census Bureau, December 2019
2 Summary: Actuarial Status of the Social Security Trust Funds – Social Security, August 2021
3 Near Retiree Research – Edelman Financial Engines conducted by Wakefield Research, October 2021, 1,000 U.S. full‑time workers age 55+, between September 9 –15, 2021, using an email invitation and an online survey
4 2020 Retirement Risk Readiness Study – Allianz Life Insurance Company of North America (Allianz Life®), April 2020
5 2019 Retirement Confidence Survey – EBRI, April 2020
6 Internal Participant Study – Edelman Financial Engines, August 2020
7 Edelman Financial Engines Data Warehouse as of June 30, 2021. Reflects members at plan sponsors offering latest features of our retirement income forecast.
8 Closing the Financial Advice Gap – Edelman Financial Engines, April 2020
9 “Voice of the American Worker” survey – Franklin Templeton, October 2020
10 2021 Retirement Confidence Survey – EBRI, January 2020
11 The 2021 America’s Best RIA Firms Independent Advisory Firm Ranking issued by Barron’s is qualitative and quantitative, including assets managed, technology spending, staff diversity, succession planning, the size and experience of teams, and the regulatory records of the advisors and firms. Firms elect to participate but do not pay to be included in the ranking. Investor experience and returns are not considered.
12 Edelman Financial Engines Data Warehouse as of June 30, 2021
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