One of the keys to financial security in retirement is
behavior; in particular, before retirement—and the earlier the better. That was
the underlying message of an expert panel in a recent webinar concerning retirement readiness.
In "Retiree Reflections: Lessons Learned for The Next
Generation," a June 22 Employee Benefit Research Institute (EBRI) webinar,
panelists discussed retirees’ views on their situations and how their decisions
led to that, as well as what employers can do to empower future retirees to
build a sound financial future and retirement.
Panelists included Bridget Bearden, Research &
Development Strategist, EBRI; Demi Hannon, Senior Director, Global Financial
Benefits and Well Being, Boeing; and Stephen Rubino, Senior Vice President,
Head of Workplace Innovation, Edelman Financial Engines.
Coulda Shoulda
Bearden cited research EBRI and Edelman Financial Engines
conducted concerning 1,109 retirees aged 55 to 80 with assets of $50,000 –
$5,000,000.
Key findings include:
Current retirees wish they had saved more and planned
earlier for retirement.
Twenty-five percent of retirees reported that their former
employer offered financial planning assistance, potentially reflecting a timing
difference or an awareness gap.
Many retirees lack a formal financial plan for retirement.
Half of respondents said that they would have changed their
financial habits if they had known doing so would have improved their current
situation, said Bearden. That rose to 53% of those without a financial plan,
and to 57% of those with less than $500,000.
About half—49%—said they wished they had started planning
for retirement earlier, said Bearden, and 55% of those who have $500,000 or
less said so. Furthermore, 40% of those with $500,000-$2,000,000 and 57% of
those with less than $500,000 said that they would have changed their financial
habits during their working years in order to improve their financial situation
in retirement. And 72% of those who said they would have changed their behavior
said that they would have saved more or started saving earlier.
Inflation
Going into retirement, said Bearden, retirees’ top concern
was not saving enough, and inflation was the third most important concern. That
changed, however—inflation went to the top and was the biggest concern of 54%
of retirees after retirement and was the most frequently cited top-of-mind
concern.
Financial Plans
The study, as well as the panelists, discussed the vagaries
of respondents’ approaches to financial planning and stressed its importance.
Bearden noted that in the study, 81% of retirees said that
they had identified their financial goals for retirement. However, for a
majority that was informal—53% said that they did not have a written financial
plan or strategy.
The reasons those who had not identified financial goals for
retirement cited for their failure to do so included:
lack of knowledge;
procrastination;
preferring to live in a spontaneous manner;
not seeing a need to set them; and
unexpected events that got in the way.
Action Steps
Panelists had a wide range of suggestions regarding things
employers can do to help employees to prepare for a more financially secure
retirement.
Rubino identified three things that can help employees who
are approaching retirement and more actively preparing for it:
1. Comprehensive and personalized income planning. “It’s
very clear that employees struggle with how to bring it all together,” said
Rubino.
2. Support from a trusted advice professional.
3. Leveraging a 401(k) investment lineup and payout
flexibility.
Financial Health. Hannon also stressed the importance
of financial health. “Financial health is just as important as physical and
mental health,” she said, adding that often, discussion of financial health is
“another important component that’s missing.”
Start Early. Hannon suggested that instruction about
the importance of finances and financial health should start early. “It’s
important to start teaching about finances and about the importance of
financial health earlier in schools,” she argued.
Plan Design. Hannon reported that Boeing’s approach
is to start with making sure that employees have, and are using, the right plan
design. And in doing so, she said, they look through the lens of what the
outcome is going to be for the employee.
Personalized Plans. Hannon and Rubino stressed the
importance of employees having personalized plans for financial health and
retirement preparations. “Employees should have something tailored to them,”
said Rubino. He reported that Edelman encounters people who think they need to
meet a financial threshold to qualify for a financial plan. “Part of it is
getting rid of this misnomer,” he said, adding that “the beauty of offering
something like this is that they have access” to such a plan. And those with a
personalized plan, said Hannon, may have a higher risk tolerance.
Technology. Enhancing the digital experience can
help, Rubino suggested. “Access to help needs to be modernized. We can do a lot
in technology, making it easier to access,” said Hannon. She noted that younger
employees are on their phones when they think about financial planning, and
argued that therefore their access needs to be quick and easy. “We have the
opportunity to make all of our tools sleek,” she said.
Remember Those Closer to Retirement. Hannon said that
it’s important to engage people closer to retirement as well and “to make sure
they understand the myriad decisions that need to be made at retirement.”
A Note of Hope
Hannon is optimistic about younger generations, and reported
that they are seeing newer employees at Boeing not wasting any time and “making
their investment choices and saving right away.”
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