Editor’s Note: this is part one of a two-part series on what can be done to help those who are about to retire or have to better prepare to finance their retirements.
There is much to be done to improve employees’ retirement readiness, and that spells opportunity — for employees, but also for retirement plan professionals, says a recent report.
“Compared to previous generations, most retirees today do not have the protection of traditional pensions. As a result, they must independently navigate an increasingly complex set of decisions that have significant implications on financial wellbeing later in life,” write Martha Deevy, Senior Research Scholar and Associate Director at the Stanford Center on Longevity, and Steve Vernon, a Consulting Research Scholar at the Stanford Center on Longevity, in “Disconnected: Reality vs. Perception in Retirement Planning.”
Not only that, say Deevy and Vernon, health insurance, long-term care, and housing — with inflation and the performance of the investment markets thrown in for good measure — “can make financially preparing for retirement a daunting task, especially considering that retirement may last for 30 years or more.”
Opportunity
Pre-retirees. There is large untapped potential in a segment of the employee population, Deevy and Vernon suggest. “While the financial services industry has developed substantial resources and messaging to help people save and invest for retirement, it has historically focused on people in the early stages of saving for retirement. Until recently, not as much attention was paid to those nearer to or just entering into retirement,” they write.
In a survey of 2,000 U.S retirees and pre-retirees from the ages of 50 to 74 conducted by Greenwald & Associates at the behest of the Stanford Center, Deevy and Vernon report that most of those who will retire soon — or already have — have amassed a “modest” amount of retirement savings with a median of $128,000. This, they warn, will generate lifetime retirement income that will not be sufficient to match their income while employed, even with Social Security benefits augmenting it.
Consequently, argue Deevy and Vernon, most of those who are approaching retirement would not be able to retire at 65 and spend like they did before that. And that could spell hard choices, such as delaying retirement, cutting spending, or drawing on other resources — or a combination of them.
But there also is good news, Deevy and Vernon suggest, for pre-retirees and for retirement professionals: researchers found strong interest in future financial security, to the tune of 80% of them. Respondents said that it was very or extremely important to them to be:
- financially secure for the rest of their lives;
- able to afford care or assistance; and
- able to maintain their desired lifestyle.
Interest in Assistance. Not only that, respondents evinced openness to assistance on a variety of matters relevant to retirement and being financially prepared for it. Among the matters that pre-retirees are interested in are:
- a strategy for savings withdrawals (63%);
- retirement savings (61%);
- estimating spending during retirement (60%); and
- determining when to start receiving Social Security benefits (58%).
And almost half of them — 49% — want help in determining when to retire. A little less than that — 46% — say that age rather than savings level will be the basis for their decision regarding when they will retire. And 30% have no plan at all for that decision.
Deevy and Vernon also say that many people are not doing significant advance planning in managing their finances for the early part of their retirement, and instead rely on adjusting their spending. Eventually, they warn, a shock of some sort will force their hand and compel them to change how they manage their finances — and they may find they have less options and fewer prospects of success in managing their retirement finances.
There may be a ray of hope in Deevy and Vernon’s observation that many of those who are getting ready to retire and who have already “don’t give themselves high marks” on retirement planning. Sixty percent wish they had done more, and nearly 75% plan to do better at it.
Advisors. A majority — 55% — of respondents said they rely on financial advisors at least a little; 41% at least to some extent; and 20% at great deal.
Employers. And the interest in assistance includes help from employers. A majority looks to retirement planning software and tools: 55% at least a little, 32% at least to some extent; and 9% a great deal. But even more — 60% — of respondents told researchers that they rely at least a little on communications from their employers as a resource in making decisions about retirement planning; 33% do so at least to some extent; and 10% rely on their employers a great deal.
Deevy and Vernon argue that the fact that only one-third of employees in the study rely on their employers for information at least to some extent spells “a significant opportunity” for employers and retirement plan administrators. They further argue that they are in a strong position to provide it, since employees often trust their employers and employers have a stake in addressing the needs of their aging employees.
Next: Action Steps and Why this Matters
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