Consider these statistics:
Some 85 percent of plan participants who report an easy transition into retirement say they shared their retirement vision with their partner;
More than 9 in 10 retirees who have an annuity are satisfied with their investment decision; and
The prospect of receiving financial advice at no additional cost is the most popular of free perks an employer can offer — more popular than on-site medical care or a free lunch prepared by an on-site chef.
So reports TIAA in research the company conducted for three studies in 2016, including a “Lifetime Income Survey,” “Voice of Experience Survey” and the “Advice Matters Survey.” Taken together, the studies highlighted the increasingly important role of worksite-based retirement planning, a continuing disconnect between reality and workers’ expectations about retirement, and the benefits to be achieved from outcome-oriented retirement solutions.
To learn more about the impact of these studies on advisors and plan participants, LifeHealthPro interviewed David Ray, a senior managing director and head of institutional retirement plan sales, and a provider of financial services to the not-for-profit space including the academic, research, medical, cultural and government fields. The following are excerpts.
LHP: I was particularly intrigued by TIAA’s “Voices of Experience” survey, which observes that more retirees are approaching retirement with “excitement and optimism.” This seems at odd with the often downbeat narrative one sees in many retirement surveys. Would you agree?
Ray (pictured at right): Yes, but the survey validates the findings of other TIAA research in respect to employees’ financial priorities and the role that lifetime income solutions play in retirement. These products are top-of-mind for the oldest baby boomers: those now 70 1/2, the age at which required minimum distributions must be taken from tax-deferred retirement accounts, such as IRAs, 401(k)s and 403(b) plans.
LHP: Did the findings of the three surveys largely dovetail with your expectations? Were there surprises?
Ray: The research mostly aligned with what we anticipated, but there were a few surprises. In respect to the Advice Matters Survey, one was the proportion of plan participants — about 35 percent of those we polled — who haven’t worked with a financial advisor and don’t believe they have enough wealth to justify doing so. Almost 50 percent of these employees believe they need at least $50,000 in savings to even merit a meeting with a financial professional.
The next generation of qualified plan target date funds will embed a lifetime income option, says TIAA’s David Ray. (Photo: Thinkstock)
LHP: And such a threshold isn’t necessary, correct?
Ray: Yes. This runs contrary to what we’ve always said: that the earlier you fully engage an advisor, the better off you are. TIAA survey respondents who began preparing for retirement before age 30 were more likely to retire before age 60. The vast majority — over 97 percent — who were early planners said they were very satisfied with their retirement.
We were also pleased to see how many employees believe they need a lifetime income option in their plan; and that the number one goal for the plan should be providing a guaranteed monthly income. But almost 41 percent of the people we interviewed for our Lifetime Income Survey were unsure as to whether their current plan offered that option. So there’s a disconnect between what they think the goal should be and their knowledge of what’s in the plan.
LHP: I understand that the Department of Labor has, in response to a TIAA request for comment, okayed using annuities as a qualified default investment alternative or QDIA in qualified plan target-date funds. Any thoughts?
Ray: I see this as a positive development. Research from our previous surveys shows that the vast majority of plan participants who were in target date funds thought they had a lifetime income option even when they didn’t. We think the next generation of target date funds will embed this option. So we’re very pleased with the DOL comment.
Regardless of what happens to employees during their lifetime, they’ll need a base level of income. The bills keep coming in retirement; you have to have some way to cover them — and over a lifetime, not just through life expectancy.
The problem with systematic withdrawal planning is that it only projects income needs through one’s life expectancy. In contrast, an annuity continues payments for as long as you live; and, with a death benefit, for as long as your spouse lives. That’s a critical differentiator. The only vehicle via which you can get lifetime income is through an annuity, be it variable or fixed — both of which TIAA offers — or a fixed indexed product.
LHP: The TIAA research indicates that a majority of plan participants who have received financial counseling feel confident about their financial situation, versus 37 percent who haven’t. Does this speak to the need for greater involvement by plan sponsors in availing employees of financial counseling as part of a retirement plan?
Ray: Yes. An advisor can play a crucial role in increasing workers’ financial confidence — confidence that can reduce financial stress and make employees more productive on the job. That’s one key benefit for employers. A second is this: Three in four plan participants say they would be more likely to consider a job if it offered financial advice at no additional cost as part of a benefits package.
Paying off student loan debt is a big issue for millennials, but they shoudn’t fall into the trap of thinking they can’t afford to save for retirement. (Photo: Thinkstock)
LHP: Do not-for-profit organizations that TIAA caters to face unique challenges in the qualified plan space? Or do you find their issues pretty much overlap with those of the for-profit world?
Ray: They largely align, as do the retirement and income planning tools that we and other financial services firms make available to non-profits. One difference we have noted is that non-profits, such as colleges and universities, tend to be more paternalistic than their for-profit counterparts. And, as a result, workers tend to be more loyal, making employee retention somewhat less of an issue.
Indeed, many non-profit staffers are “reluctant retirees:” They have the wherewithal to retire, but don’t want to because they enjoy the work. They can’t imagine doing anything else. You don’t see this as much in the for-profit world.
LHP: How much interest are you seeing among millennials in engaging in retirement planning earlier during their working lives?
Ray: There’s a growing interest in retirement planning among this cohort, but their immediate needs differ from those of Gen Xers and the baby boomers. These needs notably include paying off student loans and putting in a place a budget so they can begin to defer income.
Automated qualified plan services, including auto enrollment and auto escalation, as well as customizable planning tools and tailored support based on employees’ life stages, can help in putting employees in a retirement frame of mind, regardless of their life stage. These tools can simplify the evaluation of personal risk tolerance, asset allocation, and the current status of Social Security and Medicare, to help workers better envision and secure their future retirement objectives.
LHP: How much of a hurdle is student loan debt for millennials trying to setting aside money for retirement?
Ray: It’s a pretty big issue. What’s important is that millennials make conscious decisions, rather than ones that have unintended consequences. They need to avoid the trap of thinking they can’t afford to plan or invest for retirement — because they can’t afford not to.
Time and interest rates are on your side when you’re young. As you get older, it becomes difficult to catch up, if you ever can.
So providing millennials with retirement planning tools at the worksite is key. Even you have to underfund retirement savings for the next year or so to pay down student loan debt, at least that decision will be informed by an understanding of the financial impact on long-term savings.
LHP: Any final thoughts to share?
Ray: It’s so important to give employees a realistic view of retirement early in their careers. They sooner they can join a plan and make key decisions about retirement — whether it’s contributing more to the plan, deciding to leave the workforce later or being more aggressive with investment selections — the better off they’ll be.
As they say, hope is not a strategy. Workers need to take control of their retirement future, starting now. The earlier they begin, the more likely they’ll have the option of retiring when they want to, versus when they have to.
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