America’s retirement challenges are “eminently solvable” as workers are reporting more confidence in both the economy and their sense of job security, according to findings from the Lifetime Income Score report released by Empower Retirement, the retirement provider arm of Great-West Financial.
Though more confident, respondents’ median lifetime income score dipped slightly from last year. The average LIS, or the percentage of income projected to be replaced in retirement, is 58, down from an LIS of 61 last year.
The LIS combines expected Social Security benefits, savings from workplace retirement plans, personal savings, home equity and business ownership to project a retirement readiness score.
Underscoring previous findings, this year’s study of 4,000 respondents proved the power working with an advisor has on retirement readiness.
“People who work with a paid advisor have a nearly 30 percent point advantage in LIS over those not currently receiving professional advice,” wrote. W. Van Harlow, director of research at the Empower Institute, the new retirement research arm of Empower that was launched in accord with their year’s study.
Those working with an advisor are on track to replace 82 percent of current income in retirement, compared to 55 percent of income for those without an advisor.
Only 19 percent of respondents report working with a professional advisor.
“There is no substitute for the role advisors play in driving LIS,” Harlow wrote.
The most prodigious savers — those who can expect to replace 100 percent or more of their income in retirement — are three times more likely to work with an advisor than those savers expected to replace less than half of their income, according to the report.
“Making professional advice more widely available, regardless of historical perceptions related to socio-economic status, is an important next step,” Harlow added. “Retirement service providers and advisors should be connected at the hip.”
Predictably, the greatest influence on LIS scores comes from savings rates.
Those in the habit of saving 10 percent of income annually can expect an LIS of 100, and those saving 15 percent have an LIS nearing 140.
On the other end of the spectrum, those saving 3 percent, the most common default rate in plans with automatic enrollment, averaged an LIS of 60.
The study says income planning tools are a vital component of the overall solution to improve workplace savings, but that only about one-quarter of respondents have access to planning tools that can demonstrate the outcome of different savings rates, and only half of those with access actually use the tools.
That suggests the need for new, more “intuitively” designed software solutions, to make income projection tools less daunting to participants, according to the report.
Of course, improved planning tools are irrelevant for those without access to a workplace retirement plan, who suffer a median LIS of 42, compared to an LIS of 74 for those enrolled in plans.
Auto-escalation of deferral rates had a significant outcome on respondents’ LIS, as those with the feature in their plans averaged an LIS of 92.
A large majority — 74 percent — of respondents voiced their interest in auto-escalation features, comparable to the 78 percent that said they would feel more comfortable about retirement with a guaranteed income product in their savings plan.
Almost half indicated their interest in a health care expense planning tool, suggesting the projections predicting runaway health care costs for baby boomers are being heard.