As employees balance pressing financial needs with saving for retirement during the COVID-19 pandemic, helping them get to and through retirement has become even more critical for employer-sponsored retirement plans.
If you are a financial professional who has focused on individual products, or on employee benefits other than retirement plans, maybe you can play a role in educating employers about the need for options like in-plan annuities.
Most employees are familiar with the getting “to retirement” part; they understand the need to continually contribute to their retirement plan, diversify across asset classes, and review and rebalance over time. It is the “through retirement” that is less familiar, and requires more than just asset allocation while spending down the accumulated savings.
Employees need protection against outliving their assets, as well as inflation, and they can benefit from thinking about a diversified income strategy well before retirement is on the horizon.
The Impact of Longevity
Many are familiar with the Centers for Disease Control and Prevention January 2020 mortality report showing that the average life expectancy has increased in recent years to 78.6. However, it is important to keep in mind that this is life expectancy at birth; the older one gets the longer one is expected to live. Clearly, someone on their 78th birthday does not have a life expectancy of only a few more months! In fact, the Social Security Administration assumes that the average 65 years old retiree will live an average of about 20 years (more for females, less for males). As this is an “average,” it’s not that uncommon for people to spend as many as 25 or 30 years in retirement. Some people will spend more years in retirement than they did working! A lot can change in the decades of retirement; factors like market volatility — much like what we’ve been experiencing in 2020 — and potential cognitive decline can impact retirement income.
This is where the “through retirement” part becomes a factor, as an employee’s portfolio is called on to provide income and financial support during retirement. As COVID-19 has taken a toll on American’s financial wellness, it is more important than ever to ensure individuals are setting themselves up for a secure retirement. According to a recent survey by TIAA, 89% of individuals say that it is important to have a source of income that will not run out in retirement.