In his January 27, 2010, State of the Union address, President Obama elevated saving for retirement to the national stage as one of the most significant burdens faced by Americans today. From the vantage point of an organization that has a relationship with one out of every two U.S. households, we see the definition of retirement evolving as rapidly as the challenges facing current retirees and those Baby Boomers now beginning to retire.
For many, retirement is no longer a specific date at which an individual goes from working to not working. Today, the transition into retirement is tending to be more gradual and fluid. As such, an effective retirement strategy should go beyond an accumulation target and retirement income plan, and take into account what is truly important to an individual or couple, as well as the challenges they may face down the road. To help enable more Americans to enjoy long-term financial well-being, the realities of this evolution must be met equally with progression in the way that the public and private sectors together help individuals plan for, transition into, and remain in retirement.
Days prior to the President's address, the Administration unveiled a series of initiatives designed to reduce the strain on family budgets in the wake of the recent recession by helping Americans better manage expenses and save for retirement. These include the option to enroll in an automatic IRA for every worker currently without access to a retirement savings plan, tax credits to match retirement savings for millions of additional workers, and new initiatives designed to help safeguard the retirement savings of the "sandwich generation" as they struggle to care for both their children and parents.
We applaud steps taken by the Administration that may help increase positive retirement savings actions among Americans earlier in their lives and careers. Like the architects of today's retirement reform initiatives, we also believe in the use of incentives for individuals who save for retirement, and in raising the level of awareness around retirement programs and savings vehicles that currently exist, while making them easier to use. We also agree that employees need automatic enrollment options within their employer-sponsored retirement plans, be it an IRA or 401(k). We were encouraged to see in 2009 a 14% increase over the previous year in the adoption of automatic enrollment programs in the employer-sponsored retirement plans we administer. Today, nearly one out of five of our plan sponsor clients are using the auto enrollment feature within our 401(k) plans.
However, while reform and greater access to and use of employer-sponsored retirement plans (or accounts) can assist many more Americans in their retirement planning, alone they may still not be enough to meet challenges associated with ensuring consistent income in retirement and preventing individuals and couples from outliving their savings. Another critical component to American families' lifelong financial wellbeing--and, we believe, to the overall success of current and proposed retirement reform initiatives--will be efforts taken toward increasing individuals' financial literacy beginning at a younger age. Without better financial education, as well as professional advice and a broader approach to what we refer to as "financial wellness," many Americans may still run the risk of falling short of their retirement visions.
It can be very difficult to put enough aside for retirement, particularly for those hampered by the pressures of meeting everyday expenses. Compounding this difficulty can be the bombardment of conflicting patchworks of money-saving ideas, stock market tips, and other biased or confusing recommendations bestowed on individuals of all ages, whether they ask for them or not.
To help employees achieve financial wellness and maximize their retirement savings and investments--in whatever vehicles they have access to--employers should consider offering programs that help individuals cut through the confusion and manage their entire financial picture, not just retirement savings. Regardless of life stage or wealth status, employees desire greater access to financial information and educational tools. In fact, a January 2010 survey conducted by Merrill Lynch Wealth Management found that nearly 60% of employees would take advantage of financial education or advice services, particularly within their 401(k) plan, if offered to them by their employer.
We believe personalized, professional financial advice should be a foundational aspect of a more effective retirement plan and can help individuals save and invest more successfully for retirement. As such, within the employer-sponsored retirement plans we administer, we provide unbiased advice using an open architecture investment platform. We strive to make it easy for employees to access professional investment and retirement savings advice specific to their life stage and individual situations, and to help them understand, in a meaningful way, how their retirement account balances and current savings plan would translate into annual income in retirement.
Programs geared toward education and overall financial wellness, coupled with greater access to investment advice services, stand to positively influence employees' retirement saving actions. Combine these approaches with the boosting of retirement plan participation, through programs such as automatic enrollment, and employees can be empowered by a lifelong financial plan and gain clearer visibility into their progress at every stage.
We are committed to helping Americans plan, save and invest for retirement and, when they're ready, transition into the next stage of their lives. We hear from our customers and clients every day about the issues they face, and are providing that perspective to decision makers in Washington to help ensure that reform is properly directed. We look forward to continuing the dialogue about these important issues as the public and private sectors work together to help Americans enjoy lifelong financial health.
Andy Sieg is Head of Retirement & Services (RPS) for Bank of America Merrill Lynch. Prior to first joining Merrill Lynch 1992, Sieg served in the White House under President George H.W. Bush as an aide to the assistant to the President for Economic and Domestic Policy.
For more on Merrill Lynch's plans, see this news story from January 14.