Prudential Financial recently published its eighth biennial study on the Financial Experience and Behaviors Among Women. The results provide several valuable insights for retirement plan sponsors and benefits consultants.
The study found that women define financial success as a financially secure retirement.In fact, more women identify a comfortable and financially secure retirement as the definition of financial success than any other metric. But while 75% of women believe having enough money to maintain their lifestyle in retirement is very important, only 33% feel they are on track or ahead of schedule in planning and saving for retirement.
Whats holding them back? Survey participants point to several impediments. One is a lack of disposable income; 31% cite this as their biggest hurdle. Insufficient time to spend on financial planning is a problem. Additionally, women often lack familiarity with financial products and the options available to them.
Another interesting finding is that more than a quarter of women (28%) say they rely on employer or employer-sponsored resources for information about financial or retirement products and services, including 9% who say those are their preferred sources for such information. This reliance creates an opportunity for plan sponsors to help increase their employees retirement security. Here are some of the best practices to provide that assistance Prudential Retirement has found among its sponsor-clients.
Focus on effective plan design
A progressive plan design will include automatic enrollment, automatic contribution escalation and appropriate asset allocation solutions for participants. These features have been emerging since the Pension Protection Acts enactment in 2006. Their adoption has increased in the last few years as employers recognize how powerful these features are in helping more employees prepare for a secure retirement.
Sponsors also increasingly recognize the value of offering some form of guaranteed retirement income, which is the outcome that matters most for participants. The usual historical focus on account balances isnt very helpful because it doesnt translate readily into an understandable estimate of retirement income. Focusing on retirement income instead of account balances lets participants better understand where they stand in relation to their anticipated retirement income needs. The availability of a guaranteed lifetime income option is particularly important for women because they live longer than men. They also often take time out of the workforce to raise children or care for aging parents, which reduces their plan contributions.
Progressive plan sponsors take advantage of their providers analytic capacities to learn as much as possible about participants. The data can provide valuable insights. For example, they can help a plan sponsor identify which groups of employees are taking full advantage of their plan and which are struggling, perhaps with investment decisions or savings.
That knowledge can create personalized communications that are much more effective than generic information in driving action. Prudential Retirement works with sponsors to show participants how well they are preparing for retirement and congratulate them after taking steps to improve their readiness, such as increasing plan contributions. The goal is to make the process personal so participants see the benefit of the actions they take and to feel like they are part of the process.
Prudential Retirements behavioral finance research has shown that participants emotions often drive their financial decisions. At times, though, those emotions can get in the way of smart decision-making. Unproductive, emotion-based behaviors include procrastination and giving in to short-term impulses, for instance. Recognizing these behaviors has led to crafting messages and interaction strategies to work with both participants hearts and minds.
For example, Prudentials participant web site includes a visualization exercise which combines storytelling, which appeals to the heart, with a retirement income calculator, which focuses on numbers. The visualization asks participants to choose several photographs that represent how they see themselves in retirement: traveling the world, staying home and reading a good book or volunteering in the community, to name a few choices. That visualization makes it easier for participants to identify their long-term goals and connect their savings decisions to those goals because they can see why theyre saving.
Christine Marcks is president of Prudential Retirement
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