9 reasons why retirement may go extinct

Worried about your future retirement? Check out this great read by Marlene Satter

Retirement as we know it may be set to disappear, as younger people look for ways to finance surviving into old age.

But extinction? Surely not.

However, according to the Merrill Edge Report 2016, that might just be in the offing, as workers change how they plan and save for retirement and how they intend to pay for it.

Millennials in particular represent a shift in attitude that includes very unretirement-like plans, although GenXers too are struggling with ways to pay their way through their golden years.

That’s tough, considering that most Americans neither know nor correctly estimate how much money they might need to keep the wolf from the door during retirement—or even to retire at all.

Here’s a look at 9 reasons why retirement as we know it today might be a terminal case—unless things change drastically, and soon.

9. Ignorance.

Most Americans have no idea how much they might need to retire, which leaves them behind the eight ball when trying to figure out when or whether they can afford to do so.

Of course, it’s hardly surprising, considering how many are members of the “sandwich generation,” who find themselves caring for elderly parents while at the same time raising kids, or even trying to put those kids through college.

With soaring medical costs on one end and soaring student debt on the other, not to mention parents supporting adult children who have come home to roost, it’s hard to figure out how much they’ll need to meet all their obligations, much less try to save some of an already-stretched income to cover retirement savings as well.

8. Poor calculations.

We already know most workers don’t know how much they’ll need in retirement—but it’s not just a matter of ignorance. They don’t know how to figure it out, either.

More than half—56 percent—figure they’ll be able to get by during retirement on a million dollars or less, while 9 percent overall think up to $100,000 will see them through.

And 19 percent just flat-out say they don’t know how much they’ll need.

Considering that health care costs alone can cost them a quarter of a mil during retirement, the optimists who think they can get by on $100,000 or less and even those who figure $100,000–$500,000 will do the job are way too optimistic—particularly since saving for medical costs isn’t one of their top priorities.

7. Despair.

It’s pretty hard to get motivated about something if you think it’s not achievable—and that discourages a lot of people from saving for retirement.

Those who have a “magic number” that they think will see them through retirement aren’t all that optimistic about being able to achieve that level of savings, with 40 percent of nonretired workers saying that reaching their magic number by retirement will either be “difficult” or “virtually unattainable.”

6. Luck.

When you don’t believe you can do it on your own, what else is left? Sheer dumb luck, to quote Professor Minerva McGonagall at Hogwarts after Harry and Ron defeated the troll.

Only instead of magic wands, 17 percent of would-be retirees are sadly (and amazingly) counting on winning the lottery to get them to their goal.

5. The gig economy.

Retirement? What retirement? Millennials in particular think they’ll need side jobs in the gig economy to keep them from the cat food brigade.

In addition, exactly half of younger millennials aged 18–24 believe they need to take on a side job to reach their retirement goals, compared with only 25 percent of all respondents. They don’t believe that just one job will cut it any more.

4. Attitude adjustment.

While 83 percent of current retirees are not currently working or never have during their golden years, the majority (83 percent) of millennials plan to work in retirement—whether for income, to keep busy or to pursue a passion.

The rise of the “gig economy" has created an environment where temporary positions and short-term projects are more prevalent and employee benefits such as retirement plans are less certain. This may be why more millennials (15 percent) are likely to rank an employer’s retirement plan as the most important factor when taking a new job compared with GenXers (5 percent) and baby boomers (5 percent).

Older generations had unions to negotiate benefits for them. Millennials might realize they have to do it all themselves, but they aren’t negotiating for salaries high enough to allow them to save.

And union benefits or not, 64 percent of boomers, 79 percent of Gen Xers and even 17 percent of currently retired workers plan to work in retirement.

3. A failure to communicate.

Lack of communications is probably not surprising, since most people won’t talk about savings anyway.

Fifty-four percent of respondents say that the only person they feel comfortable discussing their current retirement savings with is their spouse or partner. Only 36 percent would discuss the subject with family, and only 22 percent would talk with friends about it.

And as for coworkers? Just 6 percent would talk about retirement savings with colleagues—although more communication on the topic no doubt could provide quite an education on both sides of the discussion.

2. Misplaced confidence.

They won’t talk about it, but they think they do better than others at saving for retirement. How might that be, when they don’t know what others are doing about retirement?

Forty-three percent of workers say they are better at saving than their friends, while 28 percent believe they’re doing better at it than coworkers; 27 percent think they’re doing better than their spouse or partner, 27 percent say they’re doing better than their parents and 24 percent say they’re beating out their siblings.

All without talking about it.

1. DIY.

They’re struggling to figure out how much they need, many won’t talk about retirement savings even with those closest to them and they’re anticipating working into retirement—but millennials in particular are taking a more hands-on approach to their investments.

Doing it oneself could actually be a good thing, since it could mean the 70 percent of millennials, 72 percent of GenXers and 57 percent of boomers who are taking the reins into their own hands better understand what they’re investing in and how they need to structure their portfolios.

However, doing it oneself without sufficient understanding—and millennials in particular are also most likely to describe their investment personality as “DIY,” with 32 percent making their own rules when it comes to investments, compared to 19 percent of all respondents—can be a problem.

After all, as the saying goes, “A little knowledge is a dangerous thing.”

See the original article Here.


Satter M. (2016 December 7). 9 reasons why retirement may go extinct[Web blog post]. Retrieved from address http://www.benefitspro.com/2016/12/07/9-reasons-why-retirement-may-go-extinct?ref=mostpopular&page_all=1

Adopting a coaching mindset to help employees plan for retirement

Are your employees prepared for retirement? See how Cath McCabe gives tips and tricks on coaching your employee for retirement.

America may be becoming the land of the free and the home of the grey as more adults are living longer lives.

According to the Administration on Aging, the number of centenarians more than doubled between 1980 and 2013. But lifespans aren’t the only thing increasing – so are the expenses that many older Americans face.

Retiree health care costs have surged exponentially – the Employee Benefits Research Institute (EBRI) estimates that the average healthy 65-year-old man will need $124,000 to handle future medical expenses. For a healthy woman of the same age, the expected amount is $140,000.

Many of these extra years – or decades – will be spent in retirement, so it’s crucial that Americans plan to have the income they need not only to retire, but to last throughout a potentially long retirement.

Since many adults use employer-sponsored retirement plans as a source of retirement funding, plan sponsors are in a key position to act as retirement “coaches” by encouraging employees to plan ahead and help them plan for their financial security in retirement.

Engage employees early and often

We have found that employers are a trusted source of financial information for employees. Plan sponsors can leverage this trust to engage employees with a variety of programs and tools that help them understand their future retirement income needs.

A plan sponsor’s role as coach begins when employees begin their careers by providing financial education.  Education can help new employees recognize the importance of contributing to a retirement plan and the benefits of saving early, as well as help to optimize employee participation in retirement programs. Education designed for mid-career employees, and those nearing retirement, can cover more complex topics as they encounter life events that require a change to their road map for retirement.

And if employees can get started earlier in their careers, there is an increased likelihood that employees will have a positive retirement experience. A recent survey among current TIAA retirees found that those who began retirement planning before age 30 are more likely to retire before the age of 60, and 75 percent say they are very satisfied with their retirement.

Coach employees through education and advice to create a retirement road map

Many Americans need help in setting and achieving their retirement goals – a recent survey found that 29 percent of Americans are saving nothing at all for retirement. It’s important to develop a retirement coaching strategy that can help put participants in the right frame of mind and offers the resources they need to establish clear retirement goals and a road map for achieving those goals.

Many people think about their retirement savings in terms of accumulation – how much of a “nest egg” they’re able to build to fund their retirement. But employers should help their employees think about their retirement savings in terms of the amount of income they will have each month to cover their living expenses. Having a source of guaranteed lifetime income can help employees mitigate the risk of outliving their retirement savings.

As a rule of thumb, most employees will need between 70 percent and 100 percent of their pre-retirement income.  If employees find they are not on track to meet this ratio, plan sponsors can help identify the necessary actions to increase the chance of success. For example, employees may need to increase their savings rate. Plan sponsors can help by encouraging employees to save enough of their own dollars to get the full employer match. If employees already are saving enough to get the full match, they then should aim to increase their contributions each year until they are saving the maximum amount allowed.  Many employees older than 50 also can take advantage of catch-up provisions to save additional funds.

Perhaps the most important function of education is to drive employees to receive personalized advice from a licensed financial consultant supporting the employer’s retirement plan. This is where the road map is created, with the advisor providing turn-by-turn guidance. For most employees, an annual meeting can help keep them on track.

Why is it important to “coach” employees to create the road map? Simply put, it can improve both plan outcomes and the employees’ retirement outcomes.  Advice is proven to positively correlate with positive action – enrolling, saving or increasing saving or optimizing allocations. (See this Retirement Readiness research for more information). Individuals who have discussed retirement with an advisor are much more likely to “run the numbers” and calculate how much income they’ll need in retirement – 79 percent versus only 32 percent who have not met with an advisor.

Helping employees along the road to retirement is a win-win for employees and plan sponsors, even beyond the fiduciary requirements. A 2015 EBRI report found that 54 percent of employees who are extremely satisfied with their benefits, such as their retirement plan and health insurance, also are extremely satisfied with their current job. Similarly, a 2013-2014 Towers Watson study revealed that nearly half (45 percent) of American workers agree that their retirement plan is an important reason why they choose to stay with their current employer. Establishing strong connections between employees and their retirement plans may aid employers’ retention efforts.

Supporting employees on their retirement readiness journey

Once employees have a better sense of the actions they need to take, plan sponsors can provide additional support by highlighting the investment choices that may help employees achieve their desired level of income. Many employees may understand how to save, but they are far less familiar with how and when to withdraw and use their savings after they have stopped working. Offering access to lifetime income options, such as low-cost annuities, through the plan’s investment menu can help employees create a monthly retirement “paycheck” that they can’t outlive.

The peace of mind that these solutions offer can last a lifetime, too. A survey among TIAA retirees found that those who have incorporated lifetime income solutions into their retirement have been satisfied with that decision. Among the retirees with a fixed or variable annuity, 92 percent are satisfied with their decision to annuitize.

Employers also should set a benchmark for regularly evaluating employees’ progress toward their retirement goals. This will allow employees to monitor their retirement outlook and identify opportunities to adjust their savings strategy so they don’t veer off their retirement road map.

Remember the emotional aspect of retirement

In addition to the financial aspects of retirement planning, it’s important to factor in emotional considerations. Offering a mentoring program, one-on-one advice and guidance sessions, or workshops and seminars to guide people on how to navigate this major milestone could be helpful for new retirees.

For some employees, going from working full time to not working at all may be a too abrupt change. Employers may want to consider offering a phased approach to retirement that gives employees the opportunity to work part time or consult to help ease the transition. An alumni program that offers occasional reunions or other programming can help retirees still feel connected to their organization for many years after they stop working.

Employers are uniquely positioned to guide employees through the retirement planning process, from early in their careers to their last day in the office – and beyond. It’s not enough to simply get employees to retirement: Plan sponsors need to help them get through retirement as well. Establishing a coaching mindset can be an effective way to actively engage employees in retirement planning and help them see that the end of their working careers can be the beginning of a wonderful new stage of life.

See the Original Post from BenefitsPro.com Here.


McCabe, C. (2016, August 04). Adopting a coaching mindset to help employees plan for retirement [Web log post]. Retrieved from http://www.benefitspro.com/2016/08/04/adopting-a-coaching-mindset-to-help-employees-plan?slreturn=1472491323&page_all=1

Retirement income calculators: What to know about their projections

Nick Thornton outlines how retirement income calculator are not all the same. Do you have the guidance of a trusted expert?

Original Post from BenefitsPro.com on June 24, 2016

Not all retirement income projection tools are the same.

In fact, the modeling tools, which are becoming default features on recordkeeping and retail advisory platforms, generate wildly varying interpretations of how retirement savings will translate into income when the golden years arrive.

A new study from Corporate Insight, a provider of research and analytics to the financial services industry, surveyed 12 income-modeling tools — six from recordkeepers’ platforms, and six from retail advisory providers.

What the company found could call into question the value of some modeling tools in their existing form.

For retirement needs analysis, the Consumer Price Index isn't enough.

Analysts at Corporate Insight created a hypothetical saver profile: A single, 40-year old male New York resident who makes $100,000 a year and defers 10 percent of his income to a defined contribution plan, which has a balance of $100,000. His employer match is 3 percent. His 401(k) is allocated to suit his moderate level of risk tolerance, and he anticipates drawing a $1,500 a month Social Security benefit upon retiring at age 67.

Those factors, and others, were in put into the calculators, with a goal to replace 85 percent of income in retirement.

What came out was a variance in projections that amounted to nearly $30,000 in annual income, in the case of the greatest discrepancy.

$6,013 a month vs. $3,772 a month

MassMutual’s Retirement Planner tool, which is part of its recordkeeping platform, projected Corporate Insight’s hypothetical saver’s monthly income at $6,013. TIAA’s Retirement Advisor tool, a part of its recordkeeping platform, estimated the same input data to generate $3,772 a month.

The average monthly projection for the 12 modeling tools was $4,792.

No two calculators generated the same projected income.

But the Principal’s Retirement Wellness Planner, Prudential’s Retirement Income Calculator, and WealthMSI’s Retirement Planner 1, the tool of the plan rollover specialist that was acquired by DST in 2015, projected incomes within $88 of one another.

Gap analysis component

Nine of the 12 analyzed tools feature a “gap analysis” component, which compares current retirement income projections to a predetermined income replacement goal.

That analysis — measuring how an investor’s savings tendencies measure against the set goal — provides valuable context to income projection modeling, say Corporate Insight’s analysts, “and should be incorporated into the results of all retirement planning tools,” according to the report. MassMutual, the CalcXML 401(k) income calculator, and Capital One’s Retire My Way tool do not offer the gap analysis.

The nine tools that do offer gap analysis base their conclusions on vastly different income replacement rate goals.

For instance, Principal’s tool sets a monthly income replacement goal of about $9,000 for Corporate Insight’s hypothetical saver, the highest among the tools. TIAA set the lowest monthly income replacement rate goal, at about $4,900. The average income goal is set at about $6,600.

6 reasons for variation in the projection models

Corporate Insight identified six factors that led to the wide variation in modeling projections: taxes, inflation rates, salary growth, Social Security benefits, investment returns, and age  —including expected retirement age and life expectancy assumptions.

Among those variables, assumptions on investment returns were the greatest reason for the wide discrepancy in projections, according to Corporate Insight.

Some of the calculators only permit one investment return assumption, meaning income projections don’t account for lower returns on less risky portfolio allocations after retirement.

Capital One assumes a pre- and post-retirement return of 7.35 percent for investors that select a “moderate” asset allocation strategy. Its tool projects the third highest monthly income at roughly $5,500, despite the fact it does not account for Social Security income or increased salary deferrals as income grows throughout a saver’s career.

Principal’s tool assumes a life expectancy of 92 years, and a 7 percent pre and post-retirement investment return.

The Merrill Lynch and WealthMSI tools apply more modest post-retirement return expectations, at 4.7 percent and 4 percent, respectively.

Part of the explanation behind MassMutual’s highest income projection is that the tool provides a non-adjustable Social Security benefit estimator, which offered a high benefit relative to Corporate Insight’s hypothetical saver’s earnings history, the analysts said.

Betterment and TIAA’s projection tools offer the lowest incomes at $3,791 and $3,772, respectively, largely because they are the only among the surveyed calculators to account for taxes and estimate projections in post-tax amounts, Corporate Insight’s report said.

Takeaways for sponsors and participants

While becoming a common feature, income replacement projection tools are still a relatively novel concept, and are likely to evolve as utilization increases.

Drew Way, senior retirement analyst at Corporate Insight and lead author of the study, said the data suggests sponsors and participants need to regard the tools as more of a guide than an exact predictor of retirement income.

“The biggest takeaway from this study is that individuals using retirement planning calculators need to be mindful that the underlying assumptions the tools employ can have a profound impact on both the results and the goal recommendations,” Way told BenefitsPro in an email.

"It's important, then, to at least know the assumptions a tool is using and to understand that it’s not meant to provide a 100 percent accurate analysis of an individual's level of retirement readiness,” he added. "Instead, the tools are meant to give users an approximation of where they stand with regard to achieving their retirement goals, and to equip them with the knowledge to then make appropriate actions to help them achieve those goals.”

Ready the full article at: http://www.benefitspro.com/2016/06/24/retirement-income-calculators-what-to-know-about-t?ref=mostpopular&page_all=1


Thornton, N. (2016, June 24). Retirement income calculators: What to know about their projections [Web log post]. Retrieved from http://www.benefitspro.com/2016/06/24/retirement-income-calculators-what-to-know-about-t?ref=mostpopular&page_all=1

Employers Advised to Re-Evaluate Retirement Plan Costs

Original post benefitnews.com

Even with fee disclosure rules in place, it is hard for plan sponsors to discern the fairness of the fee structures in their retirement plans.

The TIAA Institute has taken issue with the fairness of per capita administrative service fees. In a recent report, the Institute says that plan sponsors need to look harder at the fee structures of their plans because what may seem fair might actually be penalizing the lowest paid or shortest term workers.

“When people started charging per head fees, people claimed it was fair. It doesn’t meet an economic standard of fairness. It is simple and transparent but definitely not fair,” says David Richardson, senior economist with the TIAA Institute and author of a recent research paper on assessing fee fairness.

It is up to plan sponsors to “do that classical weighing of efficiency vs. fairness and what it means. A per head fee is transparent but it is not a fair thing to do. … These per head fees are a clever way to charge expensive fees to younger, shorter tenure workers. I find it worrisome,” he says.

This has always been an issue but all of the fees were wrapped up in an all-inclusive fee that paid for investment, administrative and other services. Once the government began requiring an unbundling of fees, “we started seeing all of these things,” he says.

Historically, fees were charged on a percentage of assets basis, which was fair, he says.

He uses Social Security as an example of why a per-head fee is not equitable. Currently, Social Security charges administrative costs as a percentage of income taken in. If it decided to charge all 325 million people in the Social Security Administration system a flat $50 fee, “every man, woman and child, firm or disabled, would be charged the same because we are providing that service,” Richardson says. “I don’t think anybody would consider that to be fair but that is what flat fee advocates are claiming in a retirement plan.”

He doesn’t believe fee issues will go away anytime soon, saying that he believes the overwhelming majority of vendors in the market are honest but many of the regulations are geared to those who may not be.

“So, the government has to be proactive, not reactive on this. The tendency is to say if people have more information, they are better informed. That is not necessarily true,” he says. “A lot of people have a hard time understanding that information. It is tough. When they are saying we need more and more disclosure, more and more information is not just helpful. Sometimes it is just noise to people.”

So when deciding how to assess the effectiveness of a plan administrative fee structure, TIAA Institute says plan sponsors must follow four standards: adequacy, meaning that total fees collected must cover the cost of features and services provided to plan participants; transparency, meaning that everyone can easily find information about the fee structure and how the fees are used to cover the cost of plan features and services; administrative ease, meaning the fee structure is not too complicated or costly for either the plan sponsors or plan vendors; and fairness, which ensures that administrative fee structures must provide horizontal and vertical equity.

Horizontal equity means that “participants with similar levels of assets pay similar levels of fees”; and vertical equity means that “participants with higher levels of assets pay at least the same proportion in fees as those with lower asset balances,” according to TIAA Institute.

The Institute says that an administrative fee structure charging a flat pro rata fee can meet all four standards.

“This fee structure will be transparent, can easily satisfy adequacy, and is simple to administer. The pro rata fee will be fair because similar participants pay the same level of fees and higher asset participants pay the same proportion of fees as low asset participants,” TIAA Institute finds.

“Our goal is to help plan sponsors make the best decision for their plan and their plan participants,” Richardson says.

He also cautions ERISA plans to keep these four standards in mind because not doing so could violate the “spirit of non-discrimination rules,” he adds. “It tilts benefits in favor of key and highly paid employees.”

Technology: Talking to a Financial Coach Reboots Financial Wellness and Narrows Gender Gap

Original post businesswire.com

In a year marked by increased market volatility and slow economic growth, it’s not a surprise that overall financial wellness levels remained virtually unchanged. Employees appear stuck, hitting a brick wall with debt, lack of emergency funds and inadequate retirement savings. However, the latest study from Financial Finesse shows that the way forward to improved employee financial wellness – and to narrow the financial Gender Gap – could be human-to-human coaching, with technology playing a supporting role.

The Year in Review: 2015, an analysis of employee financial trends based on anonymous data collected by workplace financial wellness firm Financial Finesse, describes a year where most employees have been treading water in terms of their financial wellness. Overall financial wellness levels were unchanged at 4.8 out of 10 vs. 4.7 in 2014.

The study shows that while technology was helpful in increasing employee awareness of their financial vulnerabilities, online interactions alone did not improve employee financial wellness. By contrast, employees who had five interactions including conversations on the phone or in person with a financial planner professional showed substantial progress. Those repeat interactions with a financial coach appear to help an employee get “unstuck,” and advance in key areas. For these regular participants:

  • 80% have a handle on cash flow, compared to 66% of online-only users
  • 72% have an emergency fund, compared to 50% of online-only users
  • 98% contribute to their retirement plan, compared to 89% of online-only users
  • 48% are on track for retirement, compared to 21% of online-only users
  • 64% are confident in their investment strategy, compared to 42% of online-only users

Employers who offer financial wellness programs consider tailoring communications to address these vulnerabilities in particular:

  • 58% may not be saving enough for retirement, with only 16% of Millennials on track to achieve their retirement goals.
  • 51% don’t have an emergency fund. While this declines with age, a worrisome 25% of employees 65 and older still don’t have an emergency fund.
  • 34% may be living beyond their means. For employees with family incomes of $100,000 or lower, less than half pay off their credit cards every month.
  • 33% may have serious debt problems. Debt may be hurting African American and Latino employees the most, with 75% of African American and 66% of Latino employees saying getting out of debt is a top concern.
  • Concern over market volatility is high. Many employees grew nervous about their retirement plan savings and turned to their financial wellness program for guidance on how to handle these market fluctuations.

4 retirement trends to watch in 2016

Original post benefitspro.com

The Institutional Retirement Income Council has announced the top four retirement industry trends to watch in 2016.

  1. Financial wellness plans.

According to IRIC, financial wellness will be a big one.

Employers are expected to significantly expand wellness programs that currently focus on physical wellbeing so that they also include features focusing on financial wellbeing.

With all the financial challenges faced by employees—including medical expenses, credit card debt, college expenses, and retirement planning—financial wellness programs have been growing increasingly popular, with that trend expected to continue in the year ahead.

A 2014 Society for Human Resource Management survey reported that 70 percent of HR professionals predicted that baby boomers would likely participate in a financial wellness program if their employer offered one.

Such programs will likely include not just ways to manage debt and better save for retirement, but also how to calculate a spend-down plan once in retirement and how to incorporate Social Security into one’s overall strategy.

  1. Out of plan or in plan?

Next is the trend that pits out-of-plan income solutions against in-plan solutions.

In their quest to be sure that retirement savings will provide a regular source of income throughout retirement, participants have been looking outside of their retirement plans to find ways to translate a lump sum into a monthly check.

However, the Department of Labor’s expected implementation of a fiduciary rule will have a major effect on out-of-plan advisors, as well as in-plan options.

The release of a Center for Retirement Research study that showed IRAs’ rate of return a poor substitute for that of defined benefit plans will, according to IRIC, “make it all the more difficult for advisors to recommend moving out of a defined contribution plan to those eligible to keep their assets in the plan.”

As a result, it expects that participants will be more likely to leave their assets in a retirement plan rather than rolling them over.

  1. In-plan retirement income solutions.

The move to keeping assets inside retirement plans, IRIC said, “should cause an increase in participant interest in investment vehicles that provide solutions to the draw-down, rather than accumulation, of retirement assets.”

As a result, revisiting in-plan retirement income solutions will become a major focus for plan sponsors in 2016.

IRIC said that plans that have not considered this will be under pressure from participants to “consider new solutions to address the risks of retirement income sustainability, longevity risk, market timing risk and in-plan distribution options.”

  1. In-plan distribution flexibility.

Plan sponsors will have to consider the question of which distribution options will be available to terminated participants.

If a plan only offers two options—complete lump-sum distribution or keeping the entire balance in the plan—it’s likely that sponsors will want to explore the possibility of offering periodic withdrawal opportunities, so that they can encourage terminated participants to keep their assets in the plan—which can provide benefits not only to the participants, but also to the plan itself in the form of reduced administration and fee costs.