For plan sponsors and participants, retirement success is often defined as having enough ongoing income to sustain and protect a desired retirement income lifestyle, and potentially pass a portion on to heirs, in a world of increasing life expectancy.
Only with a target in mind can participants of all ages properly plan and sequence the steps necessary to assure they won’t outlive their income in retirement. However, according to Employee Benefit Research Institute’s 2015 Retirement Confidence Survey, most individuals have only a vague idea of how they want to live during retirement, and just 48% have even bothered trying to figure out how much they need to retire comfortably. A large part of retirement planning includes helping — or nudging — participants to spend quality time thinking about their future.
The rise of in-plan financial wellness programs is helping to sharpen that picture for participants by setting clear and definable goals according to their unique needs, financial situation and time horizon. Through these programs, participants gain access to professional guidance and customized education to manage competing financial issues.
And it’s working: In Financial Finesse’s 2015 Year in Review of its Fortune 1000 clients, employees who have repeatedly engaged in their workplace financial wellness programs managed to make progress in tackling debt, staying on track for retirement, having confidence in their investment allocation and reducing their reliance on 401(k) loans.
But more can be done. The industry is moving from a “what’s my number” conversation to a dialogue about the income needed in retirement and the amount of income that savings can buy. In this age of technological opportunity, incorporating “digital nudging” (connecting relevant, actionable financial insight at the exact point when a participant is about to make a decision) in DC plan design, financial wellness program efforts and segmented communications is paramount to tackle the longevity challenge head-on.
The book “Nudge: Improving Decisions About Health, Wealth and Happiness,” by behavioral economists Richard H. Thaler and Cass R. Sunstein, established a new point-of-view in both overall plan design and participant education/communications. It offers perspective on preventing the countless mistakes Americans make, and shows how sensible choice architecture can successfully nudge people toward the best decisions.
As a complement to existing plan education, financial wellness programs help to provide the nudge many participants need toward driving positive savings behavior — in all aspects of financial life — in the right direction. By leveraging financial behavior research, targeted demographic communications and digital approaches to education, the combination of plan design advances and financial wellness efforts are making inroads in changing how participants think about the money they have, the money they spend and the money they save for retirement.
Leading experts agree that ongoing active engagement across multiple platforms is needed to help participants stay on track. Shlomo Benartzi, professor and co-chair of the behavioral decision-making group at the UCLA Anderson School of Management, suggests that plan sponsors should consider leveraging advances in technology and digital access — including laptops, iPads, smartphones or smartwatches — to practice “just-in-time” practices linking financial education and communications to the point at which participants are ready to act.
For example, participants could see a pop-up email or chat with customized content that asks a question or makes a recommendation (such as showing the impact of a higher contribution rate on their total portfolio), when a participant engages on their smartphone. From there, if they choose to engage, they are driven to an online experience to change assumptions and see consequences, including interactive calculators and tools that allow them to personalize projections.
Of course, segmentation strategies are critical as plan demographics (and associated comfort levels and preferences with emerging technologies — for example, a baby boomer’s preference for paper statements to a millennial’s desire for a reminder pop-up on their smart watch) vary greatly. Understanding and evaluating the plan’s demographics, and developing a segmented strategy aligned with a diverse audience — one that takes into consideration targeted messaging, preferred touch-points and the best driver(s) to promote a positive action — is an important part of DC plan design.
Retirement providers spend approximately one-third of their total costs on participant communication-related activities. Accordingly, every interaction must count: As plan education has moved beyond just meetings and phone calls, today there are multiple person-to-person, digital and external channels, all of which have to work seamlessly together to create a connected experience.
By leveraging 21st century advancements in technology, understanding behavioral finance principles, embracing the impact of financial wellness programs and appreciating the differences among plan demographics in communication and interaction choices, plan sponsors can help nudge participants towards increasing their retirement confidence to meet the challenge ahead.
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