How employers can help employees think about retirement income
Employers may want to make helping employees save enough to have a secure retirement their New Year’s resolution this year.
Retirement plan sponsors need to focus on three things in 2018, says David Ray, senior managing director and head of institutional retirement sales at TIAA: how to help employees reframe their thinking on retirement savings and guaranteed income streams; how to evaluate employee engagement strategies and ways to manage their plan’s success; and how to encourage younger workers to think about retirement now and not wait five years.
“What’s the most important part of a retirement plan is making sure employees can retire on their terms, if they can afford to do so,” Ray says.
A big part of that discussion, and what has changed the retirement conversation the past few years, is helping employees move from the accumulation phase of retirement savings to turning that savings into a retirement income.
Employers can help by providing education and access to lifetime income products, Ray says.
“We’re seeing more interest in this from many different generations, particularly millennials, who are far less likely to rely on Social Security to finance their retirement vs. GenXers and baby boomers,” he says. “They heard about the economic stress on Social Security, have grown up without pension plans. The risk has shifted to them and they have to get engaged and save on their own.”
Many millennials have embraced annuities because they don’t know where they are going to get a lifetime income without doing it, he adds.
More retirement plans need to put tools in place to help plan participants measure income replacement, he says. TIAA has a plan outcome assessment that measures the income replacement rate for employees. Once an employee takes the assessment, the plan sponsor can use those results to better target communications based on the person’s goals for their retirement.
“What is the problem we are trying to solve for? We have to do some diagnosis before you do a prescription,” Ray says.
Target-date funds are a popular way to get individuals who don’t know much about investing to save and invest long-term. Millennials have embraced TDFs but that has created a major pitfall because “millennials expect those to generate lifetime income out of those funds; most don’t,” Ray says. “They have pretty high expectations so there is a lot of focus on fees and regulation and participation rates but it still comes back to what is the most important thing to do with plans, provide the income.”
TIAA, which spends most of its time working with the nonprofit sector, has found that almost 70% of employers think it would be useful to provide employees with financial education, segmented for different age groups, but only one-third of those actually take action and do it. Other employers have said they want to offer financial education for women, specifically, but barely 15% offer that, Ray says.
There is an opportunity for them to do some of that, based on different age groups, life stages and gender differences, he says.
TIAA’s goals for 2018 are to get employers to look at their priorities vs. how they are going to execute those priorities.
The company wants to get employers focused on the types of activities that matter and move the needle on getting employees prepared for retirement, he says. That means focusing more on segmented education and gamification.