Americans Express Interest in Lifetime Income Options

Americans Express Interest in Lifetime Income Options

While a majority of Americans say they are confident that they will have sufficient income in retirement, large shares also express interest in purchasing a financial product that would provide them with a guaranteed monthly income in retirement, according to the results of a survey conducted by the Teachers Insurance and Annuity Association of America (TIAA).

The survey of 1,000 U.S. adults conducted in June 2016 showed that 58% feel confident that they can successfully turn their retirement savings into income after they stop working, and that only 35% are concerned about running out of money in retirement. Researchers pointed out, however, that this confidence could be misplaced, as only 46% of respondents indicated that they know how much they have saved in their retirement savings accounts, and just 35% said they know how much monthly income they will have in retirement.

The results also provided evidence that Americans are underestimating their retirement income needs. Of the respondents who are not currently retired, 41% said they are saving 10% or less of their income for retirement, and 63% estimated that they will need less than 75% of their current income to live comfortably in retirement. In addition, of the 28% of respondents who are not retired and indicated they are not saving anything for retirement, just 47% said they are worried about not having enough money in retirement.

Yet when asked to name the retirement plan feature they consider to be most important, 49% of respondents said the plan should provide a guaranteed monthly income in retirement. Moreover, when offered a choice among several lifetime benefits, 68% of the adults surveyed chose a retirement “paycheck” that lasts as long as they live over options like an unlimited lifetime airline ticket (9%), a new car every year for the rest of their life (9%), or unlimited dining out (4%). However, only 43% of respondents said they are willing to commit a portion of their retirement savings to a choice that would allow them to receive a monthly payment for life, and 41% said they are unsure whether their current retirement plan provides an option for lifetime income.

When asked to identify the specific sources of income they expect to draw from in retirement, 73% of respondents said they expect to rely on Social Security; 29% said they anticipate receiving payments from a defined benefit pension plan; 54% indicated they intend to make withdrawals from retirement accounts like 401(k)s, 403(b)s, or IRAs; and 14% said they plan to use annuities to generate an income.

The survey also found that while most respondents expressed a desire to have reliable monthly income in retirement, the vehicles they expect to use to generate that income differ by generation and by income level. For example, 84% of the baby boomer respondents said they plan to rely on Social Security for retirement income, compared to 69% of Gen X and 61% of Gen Y respondents. By contrast, the Gen X and Gen Y respondents were more likely than the baby boomers to say they plan to make withdrawals from retirement accounts.

Of the generations surveyed, millennials were less likely to say they are familiar with annuities (20%) than Gen Xers (38%) and baby boomers (41%). However, millennial respondents were more likely than older respondents to say they would be willing to commit a portion of their retirement savings to a product that will provide them with a monthly payment for life.

Broken down by income, the survey showed that respondents with incomes over $100,000 per year were more likely to say they expect to draw from a wide array of income sources than people with incomes under $50,000 per year. For example, 69% of respondents at the higher income level said they intend to withdraw savings from a retirement plan, compared to 41% of respondents at the lower income level. The higher income respondents were also more likely than their lower income counterparts to say they expect to receive payments from a pension plan (40% vs. 19%) or income from annuities (27% vs. 10%).

From Benefit Trends Newsletter, Volume 59, Issue 10

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2016 Liberty Publishing, Inc. All rights reserved.

Workers Show Signs Of Becoming More Financially Savvy

Workers Show Signs Of Becoming More Financially Savvy

Employees are becoming more proactive about their finances and are taking steps to assess their personal financial situations, but employers could do more to help change the financial trajectory of the millennial generation in particular, a new report by financial education provider Financial Finesse stressed.

The findings of the “Generational Research 2016” report are based primarily on the analysis of 35,703 financial wellness assessments that measure how well employees are managing their finances. The assessments were completed by employees between January 1, 2014 and December 31, 2015.

The analysis found that employees with higher financial wellness scores, as measured on a scale of zero to 10, also had higher contribution rates to an employer-sponsored retirement plan: the results showed that employees with financial wellness scores of 4.0, 5.0, or 6.0 had average deferral rates of 6.57%, 7.38%, and 8.37%, respectively.

The focus of the analysis was on the differences between the generations in their approaches to managing their finances. Not surprisingly, baby boomers (aged 55+) were found to have the highest overall financial wellness score of the generations, at 5.7; compared with 4.8 for generation Xers (aged 30 to 54) and 4.4 for millennials (under age 30).

The results indicated that in 2015, 78% of baby boomers had basic investment knowledge, 50% had run a retirement calculator, 56% were checking their credit score annually, and 45% knew how much to save for college education. When asked to rank their financial priorities, the baby boomers overwhelmingly selected retirement planning (91%), followed by investment planning (39%) and getting out of debt (34%). When asked to identify their main financial vulnerabilities, the top response was not saving enough for retirement (63%), followed by inadequate wealth protection (46%) and a lack of emergency savings (33%).

The 2015 findings for generation X showed that 38% had used a retirement calculator, 60% were checking their credit score annually, and 23% knew how much they have to save for college education. While the members of this age group chose retirement planning as their top financial priority (73%), they also ranked getting out of debt (55%) and managing cash flow (51%) as important considerations. Their most frequently cited vulnerabilities were not saving enough for retirement (56%), a lack of emergency savings (53%), and living beyond their means (40%).

Meanwhile, the 2015 results for millennials indicated that 23% had used a retirement calculator, 61% were checking their credit score annually, and 22% knew how much they have to save for college education. The top financial priority cited by the millennials was managing cash flow (74%), followed by getting out of debt (61%) and retirement planning (51%). However, these young adults rated not saving enough for retirement (60%) and a lack of emergency savings (60%) as their top two vulnerabilities, followed by serious debt (43%).

While 73% of millennials reported that they contribute to their company’s retirement plan, the findings suggest they were lagging behind generation X in longer term goals like investing and retirement planning by substantial margins. Researchers observed that this may be because millennials tend to have a “free agent” mindset, which leads them to focus less on retirement than older generations.

The report emphasized that employees of all generations appear to be increasingly likely to “run their numbers” to calculate where they stand currently with key financial goals, and are beginning to understand what changes they need to make to their money management, savings, and investing strategies to reach these goals. However, researchers also recommended that employers use financial coaching programs to help employees overcome biases such as the tendency to value satisfaction today over future satisfaction, and to neglect the value of compounding.

Benefits Trends, Volume 59, Issue 7

The information contained in this post is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. The information in this post is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2016 Liberty Publishing, Inc. All rights reserved.

Americans Lack Confidence In Ability to Save for Retirement

Americans Lack Confidence In Ability to Save for Retirement

While a majority of Americans continue to lack confidence in their ability to save enough for retirement, those who have access to a retirement plan at work are somewhat more confident about their financial future, and are considerably more likely to have set retirement savings goals than those who do not have a workplace plan, the results of a survey conducted by Plan Sponsor indicated.

The survey of 1,035 employed adults ages 23 and older was conducted in March 2016. The survey is designed to examine the retirement planning attitudes and behaviors of American workers, regardless of whether they participate in an employer-sponsored retirement plan.

Just 29.8% of respondents said they are either confident or very confident that they will achieve their retirement goals—a share that researchers noted was the lowest in the survey’s three-year history. The results also showed that just 28.1% of the adults surveyed said they have a retirement goal, 24.1% said they use a financial adviser, 34.2% indicated they have a family budget, and 53.7% said they have at least $5,000 in an emergency fund. When asked about the amount they have saved for retirement, 41% of respondents reported that they have less than $50,000 in savings, 31.5% said they have between $50,000 and $250,000, and 21% said they have more than $250,000.

Compared to the respondents who reported saving less than $50,000, the respondents who said they had saved more than $250,000 were three times more likely to indicate they have a retirement savings goal, and more than four times as likely to say they work with a financial adviser. The survey also showed that the respondents with access to a defined contribution plan at work were twice as likely to have established retirement goals as those without access (30.8% vs. 15.3%)

When the respondents with access to an employer-provided retirement plan were asked about their deferral rate, just 17.4% said they are deferring more than 10%, while 42.8% said they are deferring
less than 6%. Not surprisingly, younger people are saving less than older people: only slightly more than 30% of respondents ages 50 and younger reported having a deferral rate of more than 6%, compared with 48.6% over age 50.

The survey also indicated that while 44.6% of respondents under age 30 said they would like to receive more financial education at work, only 34.9% of this group said they always read plan communications, compared with 54.2% over age 50.

The findings further showed that 87.4% of respondents who said they are usually or always living paycheck to paycheck have little or no confidence that they will have a secure retirement. Moreover, even among the respondents who said they are confident or very confident that they will be able to achieve their retirement goals, 58.8% estimate that they will need to replace less than 70% of their current income—a figure that researchers pointed out is considerably lower than the 85% often cited in the industry.

Benefits Trends, Volume 59, Issue 6

The information contained in this post is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. The information in this post is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2016 Liberty Publishing, Inc. All rights reserved.

Baby Boomers Lack Confidence in Their Retirement Readiness

Less than one-quarter of baby boomers say they are confident they are ready for retirement, and just over one-half report having any retirement savings at all, according to the results of a survey conducted by the Insured Retirement Institute (IRI).

The survey of 800 Americans aged 53 to 69, conducted February 9-11, 2016, found that just 24% of respondents are confident they will have enough savings to last throughout their retirement years. Researchers pointed out that this is the lowest level in the six years the IRI has been conducting this survey: in 2011, for example, 37% of the boomers polled expressed confidence that they had saved enough for retirement.

Overall, the results indicated that the baby boomers surveyed have very low levels of confidence in their financial readiness for retirement: just 22% said they believe they are doing a good job in preparing for retirement, only 27% said they are confident that their savings will be sufficient to cover health care costs in retirement, and just 16% said they are confident they can cover the cost of long-term care.

Of the baby boomers surveyed, 55% reported having retirement savings, and of those who indicated that they have savings, 42% said they have saved less than $100,000, 29% said they have saved between $100,000 and $250,000, and another 29% indicated they have saved more than $250,000.

The survey also showed that the respondents who reported that they lack confidence in their retirement security expressed some common regrets, with 68% saying they wish they had saved more, and 67% saying they wish they started saving earlier. By contrast, just 27% said they regret not having maximized their employer plan benefits.

The findings further indicated that significant shares of baby boomers are delaying retirement: 30% of respondents said they had postponed their plans to retire in the past year, and 59% said they now plan to retire at age 65 or older. Researchers observed that while just 17% of the baby boomers surveyed in 2011 said they plan to retire at age 70 or older, this figure had risen to 26% in the most recent survey.

When asked what they would do if they exhausted their financial resources in retirement, 71% of respondents said they would try to cut back to rely only on Social Security, 54% said they would try to return to work, 22% said they would rely on charity, and 19% said they would seek help from their children or other family members.

The findings also revealed that baby boomers are losing confidence that they will be able to leave an inheritance to their children: just 46% of respondents in the 2016 survey said they believe it is important to leave money to heirs, down from a high of 67% in 2013.

In addition, the survey found that significant shares of baby boomers are currently facing financial difficulties: 30% reported that they have stopped contributing to retirement accounts, 30% said they have found it more difficult to pay their mortgage or rent, and 16% said they have taken premature withdrawals from their retirement accounts.

The survey also showed, however, that the boomers who have consulted financial professionals are more confident on average: although only 27% said they work with a financial professional, 80% of this group indicated that they feel better prepared for retirement as a result, and 78% of this group reported that they have at least $100,000 saved for retirement.

From Benefit Trends Newsletter, Volume 59, Issue 5

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2016 Liberty Publishing, Inc. All rights reserved.

Plan Sponsors Should Offer Participants Personalized Guidance

Rather than simply communicating with employees about their workplace retirement plan, employers should seek to offer participants personalized guidance on how to save for retirement, and make the process of contributing to and managing their retirement accounts easier and more effective, a report by Broadridge Financial Solutions recommended.

The report, “The Experience Revolution: Latest Trends in Participant Experience Design,” was prepared in association with Oculus Partners, and published on March 11. Researchers observed that growing numbers of retirement plan sponsors are seeking to build an infrastructure that supports sustainable, consistent, and predictable participant experiences across their entire business base. Some of these platforms are built internally, while others are constructed through external partnerships and outsourcing arrangements.

The report identified a number of practices and plan features that are being used by leading providers across the industry to create better participant experiences. First, many plan sponsors are completely overhauling the participant experience related to automatic enrollment, contribution escalation, QDIA investing, reenrollment, reinstatement, and other types of automatic features. The authors recommended that plan sponsors eliminate steps and potential confusion, rethinking when and what information is provided, and what other decisions should accompany the “automatic” transaction.

In addition, the report recommended that plan sponsors offer interactive calculators and tools to allow the participant to personalize the projections with more information by, for example, answering true profiling questions, the responses to which are stored for future use. The report also suggested that employers use a multi-channel participant experience design with a balance of person-to-person and digital interactions.

Moreover, researchers advised plan sponsors to generate personalized retirement income projections for each participant that take into account all of the known information from the employer’s plans, the participant, and other purchased information. Based on this information and predictive analytics, each participant can then be offered a series of personalized “next best step” messages to guide him or her through every interaction, and be sent targeted campaign materials supplemented with life stage and life event content and messaging. To help participants stay on track and find out where they stand relative to peers in similar situations, plan sponsors can offer them access to “people like me” benchmarks and comparisons within plans or across plans.

The report also advocated providing participants with access to financial wellness and investment advice programs that go beyond third-party partnerships, and offer truly integrated experiences across select partners by sharing data, offering integrated access, and presenting unified guidance and perspectives.

Finally, the report recommended that plan sponsors use dashboards and digitally delivered analytics to help them assess how the plan is performing against these new participant experience metrics. These platforms have drill-down capabilities that allow sponsors to track participant activities, engagement, enjoyment, and outcomes. Researchers observed that by harnessing the power of data from their platforms, sponsors can more accurately and completely measure channel usage at a participant level across channels and by type of interaction.

Benefit Trends, Volume 59, Issue 4

The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. This newsletter is written and published by Liberty Publishing, Inc., Beverly, MA. Copyright © 2016 Liberty Publishing, Inc. All rights reserved.