Offer guaranteed income and advisory services among the recommendations to improve retirement security
A review of the recent Employee Benefit Research Institute (EBRI) study “Survey of pension expenditure”, The institute’s Retirement Security Research Center (RSRC) has identified four keys to facilitating financial security in retirement for a variety of types of retirees.
The EBRI used data from its survey to divide respondents into distinct groups based on their financial status and self-reported spending behavior. These are average retirees, who represent 28% of the total respondents; comfortable retirees (22%); well-off retirees (19%); retirees in difficulty (18%); and retirees “on the way out” (12%).
In assessing retiree profiles, the RSRC found that the most salient factors in retirement satisfaction and security appear to be guaranteed sources of income, low debt, a clear spending reduction strategy, and access. employer sponsored retirement assistance, including Advisory Services.
In light of this, in a Point of view document, the RSRC suggests that plan sponsors, providers and policy makers might consider:
- Adding a level of retirement – or defined contribution (DC) plan investments specially designed for close or retired people – to investment choices;
- Integrate very low commission institutionally priced annuities into the DC plan so that they are automated for retirees; and
- Rethinking how life income illustrations can be used to reorient the way people view their retirement savings. For example, such illustrations might show how a savings âfloorâ could be established as savings are withdrawn. The illustration could show the impact of maintaining 25% of one’s balance, for example, throughout retirement while drawing on savings. This could help retirees understand that spending in retirement is not an âall or nothingâ proposition; it is possible to maintain cushion and protection against end-of-life health care needs while purchasing an annuity to have a guaranteed income stream.
To tackle debt, the report says plan sponsors, providers and policymakers might consider:
- Provide a more holistic view of retirement income security that includes debt management programs for pre-retirees and retirees;
- Use technology to tailor messages, tools and approaches for those who are in debt versus those who are not;
- Make pre-retirees aware of the reality of working in retirement. The EBRI survey of confidence in retirement shows that many more workers think they will continue to work for pay in retirement than what retirees actually say; and
- Help create a better understanding of the importance of a home without a mortgage in retirement.
To facilitate a clear strategy for reducing spending in retirement, the RSRC suggests that plan sponsors, providers and policy makers might consider:
- How to approach the behavioral aspects of retirement spending. The report says helping get over the sticker shock could make retirees more comfortable spending their assets.
- Ways to help pre-retirees understand the realities of life in retirement so that the prospect of retirement spending is not so daunting;
- How to make the connection between health and wealth during the working years. Health Savings Accounts (HSAs) can serve as a vehicle for retirement savings, providing another potential source of income for retirees; and
- Ways to create “expense paychecks”. The report states that evidence from JP Morgan Chase’s research shows that people manage their cash flow from the money in their bank accounts. If regular income automatically comes from saving in a retiree’s checking account, it can facilitate spending and increase confidence in spending.
The RSRC said its partners who reviewed the EBRI survey – including asset managers, registrars, insurance companies, banks, consultancies and other pension providers – are are focused on how to make the advice more scalable so that retirees with fewer assets have access to some level of financial assistance. . They also discussed how the retirement level could be leveraged to include integrated guidance or advice that provides lower cost and more scalable support. They noted that the traditional role of an advisor is not only to guide retirees ‘investments, but also to strengthen retirees’ plans and help them understand whether they are on the right track or not.
The RSRC underlined in its report that the path of retirees can be defined long before they reach the effective retirement age. So, for example, it is crucial to address debt levels well before individuals approach retirement, as those facing retirement with unmanageable debt may find themselves with very few options to improve their situation. .