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.