The key to boosting retirement savings is putting much of the process on autopilot, said Robert Kaplan, vice president and national training consultant for ING’s U.S. Retirement Services. At the ASPPA 401(k) Summit, he described the success automatic plan features have had in improving participant outcomes.
Workplaces offering 401(k) plans that require opting out instead of opting in, he said, have 90% participation rates. Increasing employee contributions automatically over time helps overcome inertia, but sponsors need to give participants plenty of lead time so they're aware of the upcoming change. Similarly, automatic rebalancing helps overcome emotional reactions to market changes that lead participants to "buy high and sell low."
Although target-date funds have been abused lately, Kaplan said that "the vast majority of new dollars goes to these funds." Managed accounts also help improve outcomes for participants. "People say they want help, but they don't want to lose control," Kaplan said.
Another important factor in retirement plan success, Kaplan said, is enhanced communication. In a small sample at ING, leading participants through the enrollment process on iPads preloaded with enrollment data led to 97% success rates, he said. Mobile apps and gaming are also useful ways to increase participation. Young users especially want information right away, and one out of every seven minutes of media consumption is through a mobile device. Furthermore, 141 million Americans refer to themselves as gamers, while just 61 million call themselves savers.
Most people are "just a little bit competitive," Kaplan said. Using the plan decisions of people in similar situations to frame investment choices is a way to harness that competitiveness. If advisors tell their clients that other investors who are the same age in similar financial situations are saving, say, 8%, they may be inclined to save at a higher rate, Kaplan said.
Retirement success goes beyond accumulation and plan design. Mitch Anthony, president of Advisor Insights, said retirement planning "conversations must be more compelling than numbers and facts."
"You must make virtue out of necessity," Anthony said. To do that, advisors have to show their clients how to think about retirement as a "vocation" rather than a "vacation."
"By thinking of retirement as a vocation, clients have a compelling reason to save money. 'How long can you walk on a beach and pick up shells?' is a question you need to ponder."
Anthony referred to a RAND Corporation study that found 60% of retirees will be working again in 12 months. "What role will work play in retirement?" he asked.
Anthony suggested one way to get clients to think about how they would fill their time after they stop working was to fill in a calendar with daily activities.
"After they fill in their tee times, the page is still 90% blank," he said.
It can also be helpful to ask who clients feel financial responsibility for. Many people approaching retirement are caring for older children and aging parents at the same time. If clients feel a responsibility to pay for college and long-term care, that needs to be factored into their retirement plan.
Anthony suggested a "phased-in retirement" as a useful option not just for retirees, but for companies as well. "Phased-in retirement keeps brain power in the company longer," he said. He stressed, however, that clients who take on a phased-in retirement accept that they won't receive the pay and benefits that they've been accustomed to.
"We have an individual retirement mindset" rather than an institutional one, Anthony said. "We don't have paternal corporations anymore. They're not taking care of you."