Tag Archives: retirement adequacy

Helping women reach financial goals

A recent survey by Prudential reported that 54% of women are primary breadwinners, but men on average were more likely to say they are on track to meet their financial goals. Only 54% of women have put aside money for retirement compared to 61% of men. And when asked about their financial future, 52% of women said they were very worried compared to 42% of men.

Women face unique obstacles in securing the necessary road map for retirement. But as Milliman’s Christine Jello, Suzanne Norman, and Pat Renzi say in their article, “Women and retirement,” there is reason to be optimistic that, through innovative technology and an industry aware of women’s purchasing power, more resources are becoming available to help them chart their financial futures.

Lifelong income solutions for retirees

While employers may want to provide better options to their employees, the fiduciary, financial, and administrative hurdles are steep. Retirees will have to pick from a small list of solutions until new alternatives are developed. This article by Milliman’s Kari Jakobe summarizes some of the existing approaches commonly used by retirees to convert their retirement distributions into a lifetime of retirement income.

What changes will you make to help increase your employees’ retirement confidence?

Regli-JinnieThe 2015 Retirement Confidence Survey, published by the Employee Benefit Research Institute, continues to highlight the rise of retirement confidence in American workers. An increase in retirement plan participation (14% in 2013 to 28% in 2015 for those with a retirement plan) seems to closely correlate with the rise in the percentage of workers who are confident about having enough money in retirement (13% in 2013 to 22% in 2015).

The survey findings seem to indicate that more American workers are taking retirement planning into account and they are feeling very confident about having enough money in retirement, both of which may be related to the increase in availability and accessibility of online retirement calculators and a growing confidence in the overall economy. Yet at the same time, the percentage of American workers who report having saved for retirement has stayed fairly consistent at 63%, indicating that more may need to be done in order to assist workers in saving. Here are a few standout figures from the 2015 survey results:

• 80% of current workers believe personal savings will play a large role in their retirement incomes
• 71% of employed workers report their employers offer an employer-sponsored retirement savings plan
• 12% of those without a retirement plan reported feeling very confident
• 50% of those asked what they would do if they were automatically enrolled at 3% said they would raise their contribution rate; only 2% said they would stop it altogether

It seems that, as the economy strengthens, many American workers are comfortable making retirement savings a priority, so what better time to encourage them to make the most of it?

As plan sponsors, what can be done to help keep retirement confidence on the rise for years to come? Here are some ideas.

• If you don’t offer an employer-sponsored plan, consider offering one. Behavioral finance has found that inertia makes humans their own worst enemies when it comes to retirement savings, making it all that more difficult for the 29% of employed workers without an employer-sponsored retirement plan to save for their retirement. Open the door for them to begin saving today!
• If you already offer an employer-sponsored plan, think about offering additional employer-sponsored plans. Employee stock ownership plans (ESOPs), nonqualified retirement plans, cash balance plans—there are a variety of options available that could be used to supplement your current 401(k) plan.
• Or continue to drive participation by considering plan design changes that will promote additional plan participation. Speak with your consultant about the best options for your company.
• Educate participants. Make sure your employees have sufficient information and tools to assist in their retirement planning.

What changes will you make to help your employees’ retirement confidence increase?

Boosting retirement confidence

Bleick-TimThe Employee Benefits Research Institute (EBRI) recently issued its 2014 Retirement Confidence Survey. The percentage of American workers who say they are not too confident or not at all confident they will have enough money to live comfortably throughout their retirement years now stands at 43%, down from 49% a year ago. While this is trending in the right direction, it is still concerning that more than four out of every 10 American workers currently put their chances of a comfortable retirement at less than 50-50.

The survey does a good job of dissecting the results to explore correlations. For example, the retirement confidence levels are vastly different between workers who have a retirement plan—e.g., an IRA, a defined contribution (DC) plan, or a defined benefit (DB) plan—compared to those who do not. Of those who have a retirement plan, only 28% say they are not too confident or not at all confident about a comfortable retirement. Of those who do not have a retirement plan, 69% are not too confident or not at all confident. It’s likely that many of these workers have very little personal savings. Add to that everyone’s concern about the path that Social Security is currently on, and it’s no wonder that almost seven out of 10 American workers with no retirement plan take a dim view of their chances for a comfortable retirement.

There’s an obvious solution to increasing retirement confidence in America, which is to get more workers into retirement plans. It may well be that a good portion of that 69% has 401(k) or similar retirement savings vehicles available at their employers, but they are not utilizing them. To get more workers into these plans, employers need to be continuously encouraging their employees and educating them on the power of “starting early,” the benefits of tax-deferred growth, and how they are leaving money on the table if there’s a match. Plus, automatic enrollment is an excellent mechanism to get new employees contributing at the onset. Small employers who do not currently offer a retirement savings vehicle should consider that retirement plans can help attract and retain employees and instill the importance of saving for retirement.

One of the most common 401(k) designs is one in which the employer matches 50 cents of every dollar an employee contributes, up to 6% of pay. Translation: employee contributes 6% of his pay and employer kicks in another 3% of pay, for a total of 9%. A person age 35 making $50,000 doing this every year for 30 years would have about $500,000 at age 65 (assuming 3% pay increases and 6% return on investments). Do you think half a million dollars would boost someone’s retirement confidence level?

Measuring retirement confidence

Bleick-TimAccording to the 2013 Retirement Confidence Survey by the Employee Benefits Research Institute, 49% of American workers are not too confident or not at all confident that they will have enough money to live comfortably throughout their retirement years. Sure, the current state of the economy has a lot to do with that, as well as people not saving enough. And, of course, younger people tend to be less confident about Social Security.

But I think a good chunk of the lack of confidence is actually a lack of understanding about how much it will take to live comfortably. Saving for retirement is not like saving for anything else. If you are saving for a new car, you know precisely when you have enough money to buy that car. How do you know when you have enough money for retirement?

There are so many unknowns after retirement. And the main one is that people don’t know how long they are going to live. A big fear of retirees is outliving their assets, otherwise known as longevity risk. But there are some retirees who are more confident that they won’t outlive their assets: retirees with defined benefit (DB) pension plans.

A pension plan pays a benefit amount every month until a person dies. That can’t be outlived. The monthly amount is typically based on the number of years of service with an employer and may be tied to salary. If the person is married, the benefit can continue to a spouse after death.

Problem is, though, that these types of plans are becoming less and less prevalent every year, as companies are freezing and/or terminating them. So even if the economy gets back on track and people can start saving more, it’s not clear we’ll see an improvement to the confidence level of American workers as to whether or not they will have enough money to live comfortably throughout their retirement years.

I recall a series of commercials a few years ago that showed people walking around with six or seven digit numbers, looking confident, as if that were the precise number they needed to retire. How much more confident would they have been walking around with their defined benefit pension plans?

School’s out for summer

I have two kids and they just started summer vacation. Ahhh, the sweet freedom of youth. Months of swimming, fishing, bike riding, and downloading ridiculous apps.

My 12-year-old son noticed that I was still doing my usual evening prep to get everything ready for work the next morning and said, “No summer vacation for you, Dad.” I nodded. “Don’t worry,” he continued, “You’ll be laughing at me when you’re retired.”

Wow. Pension humor at age 12. He’s a chip off the old block, my son.

I only hope he’s right. But I’m sure not laughing yet. I’m 46 and, although I’m saving for retirement, I also plan to live a lot longer, which means I’ve got to work longer to save up for it. In addition, although I’ve had good health so far (and I try to hit the gym four or five times a week), there’s no guarantee that it will last.

People are living longer. On average, a 65-year-old can expect to live another 19 years, but it’s becoming more and more common to cross the century mark. People are also dying longer. Instead of dying quickly from heart attacks, we’re facing long battles with cancer or Alzheimer’s, and along the way we’re having hip replacements and knee replacements. With healthcare costs already straining company budgets, I have to believe that some of my nest egg will be paying for my medical needs. (Check out the Milliman Medical Index for some sobering data on how the average family of four spends more on medical premiums than they do on groceries.)

In the meantime, my kids will need college educations and the tuition trend is looking a lot like the healthcare trend.

It’s a good thing I love my job (Thank you Mr. Milliman!) because I’ll probably be at it for a while. And that’s really the bright side. It’s a challenging time to be in the benefits industry. The global financial crisis has really put the squeeze on a lot of pension plans and our clients need creative solutions for managing costs while staying compliant. Furthermore, I think the pendulum may be about to swing back in favor of defined benefit (DB) plans because people now realize that 401(k) plans alone can’t provide a stable, secure retirement. But the defined benefit plans of tomorrow will need less volatility and may have later retirement ages.

So, someday in the distant future, I’m sure I’ll be able to laugh at my son when I’m retired and he’s a member of the workforce, but I can wait a while and find other things to laugh about along the way.