The Rx For Income Planning? More Education And Tools
To ensure retired employees have a steady income stream in their post-employment years, it will take more than including an income option in their qualified retirement plans, cautioned Dallas L. Salisbury at a meeting here.
Workers also need enough education to make informed decisions about their choices, contended the president and CEO of Employee Benefit Research Institute, Washington, D.C. Without such education, most employees take the lump sum option, he explained.
Speaking here at the annual retirement income conference of the Reston, Va.-based National Association for Variable Annuities, Salisbury allowed that many people do receive savings education and encouragement to save. However, he continued, they receive “extraordinarily limited” education about protecting their assets from risks they face in retirement (e.g., longevity, inflation).
Another speaker at the meeting, Matthew Greenwald, president of Matthew Greenwald Associates, Washington, D.C., said he believes people are not totally content with a retirement plan that focuses only on accumulating a sum of money.
However, new steps will be needed in the retirement planning field to ensure that plans address workers income needs once they retire, Greenwald maintained. Specifically, he called for more education about annuitization as a distribution option, more retirement income management tools, more product innovation and enactment of related legislation (see chart).
Salisbury also said education is important. But even when plans put emphasis and education on income options, he added, plan data shows that “getting people to take the income option is very difficult.”
He cited the experience at TIAA-CREF. This plan offers a range of retirement income options, including lifetime annuities, an interest-only option, systematic cash withdrawal, transfer payout annuity and a minimum distribution option, Salisbury noted.
In addition, it details the options on its Web site and also asks questions about the employees health and whether the employee expects to live at least another 5 years.
These things suggest TIAA-CREF is “attempting to get people to think clearly about the questions they will face,” Salisbury said. In fact, he added, it is “aggressively pushing people to face what they will actually spend in retirement.”
Even so, just 45% of TIAA-CREF retirees now choose the life annuity option with the insurance component protection, he said. Thats down from 100% in 1988, which was the last year that TIAA-CREF offered only an income annuity option.
Once the organization started offering multiple income options in 1989, he noted, people began making other choices.