Data & Research February 22, 2016

Even Occasional Savings Bumps Can Boost Retirement Outcomes

Fidelity realizes retirement plan participants have competing financial priorities and don't feel they can increase their savings every year.
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During America Saves Week, an annual campaign, Fidelity urges people to start saving as early as possible, and if they can, increase savings each year during the campaign, even if only by a small amount.

Fidelity recommends participants save 15% toward retirement, including their pre-tax deferrals and any contributions their employers make.

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Last year, Fidelity examined the benefit of increasing 401(k) or 403(b) savings by just 1% for people ages 25 to 55. Each age saw additional estimated monthly retirement income, especially the 25-year-old. This year Fidelity took the analysis a step further, studying three increase scenarios to demonstrate the power of establishing ongoing savings rituals when young.

First, a 25-year-old earning $40,000 who increases his deferral this year by 1% could receive additional income in retirement of $190 per month.

Fidelity recognizes that Millennials will have a lot of expenses during their working lives, such as saving for a home, paying off student debt or unexpected health care costs. With this in mind, Fidelity studied the benefit of increasing savings by 1% every five years for a total increase of 5% over 25 years. Those who adopt this pattern could receive $690 more in monthly retirement income.

The impact is even greater if a 25-year-old begins a savings ritual where they increase their deferral by 1% annually for a total of 12 increases. Under this scenario, he could receive $1,930 per month in extra retirement income.

NEXT: Lessons for plan sponsors and participants

“Saving 1% at a point in time, and bumping up savings by 1% every year is good,” Katie Taylor, director of Thought Leadership at Fidelity in Boston, tells PLANADVISER. “But what about those in the middle with competing financial priorities?”

Taylor says employees understand the need to increase savings every year, but feel like they can’t. Fidelity’s scenario shows the benefit of increasing savings every so often.

“We had a really successful campaign last year. Some folks are intimidated and feel can’t save any more, but seeing what 1% can do encourages them,” Taylor adds.

She noted that plan sponsors are challenged a little bit with how to engage participants to save more, particularly with Millennials for whom retirement is so far away. “Using America Saves Week and tools and resources available will help plan sponsors with a strategy to help individuals save more,” she says.

However, encouragement doesn’t just have to come during America Saves week; plan sponsors can promote more savings when employees get a raise, at the beginning of the year and at the end of the year, according to Taylor.

She adds that overall financial wellness tools and education can help employees with budgeting, debt and college savings. “And, plan sponsors can use automatic enrollment, automatic deferral escalation and campaigns such as America Saves Week to encourage employees to save and save more.”

NEXT: Resources Fidelity offers

Fidelity offers many resources for retirement plan participants.

  • Join the conversation tomorrow during Fidelity’s Twitter Chat on Tuesday, February 23 from 2:00-3:00 p.m. ET by following #AutoSave16, @Jeanne_Fidelity, @SweeneyFidelity or @Fidelity;
  • Register for the Empowering Conversations Webcast on March 8 to help women learn to prepare for the unexpected;
  • Learn your Retirement Score, an estimate of your ability to cover expenses in retirement;
  • Have a child working? Give them a jumpstart on retirement saving and help them learn the power of compounding by opening a Roth IRA for Kids; and
  • Visit Fidelity Viewpoints for education about college savings, paying off debt, Social Security, health care and how one percent more can make a big difference.

Fidelity also offers a savings and spending checkup.

 

Products February 22, 2016

TIAA-CREF Turns the Page and Shortens Its Name

A substantial rebranding and website redesign underscore the transformation to TIAA, with its simpler, more customer-centric vision.
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The name, the look and the customer experience may be new, but TIAA (formerly TIAA-CREF) says its mission remains the same.

“It’s a journey we’ve been on for several years,” explains Ed Moslander, senior managing director and head of institutional client services, in describing the company’s decision to drop the second part of its name (college retirement equities fund). “The idea is to place the emphasis on simplicity, clarity and engagement at the center of our customer experience,” he tells PLANADVISER.

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Market research revealed that customers called the firm TIAA, which conveys a simpler, performance-driven image, Moslander says. “Our equity was there,” he explains, “and many also told us the shorter name signals that we are easier to do business with.”

Although the name of the overall company is changing to TIAA, the underlying mutual funds, annuities and other financial products will stay the same, says Moslander. CREF annuities will still be named CREF. Nuveen Investments, which TIAA acquired in 2014, also does not change in any way. 

The website redesign will spark greater participant engagement, Moslander predicts. “That is the top desire of every plan sponsor: for employees to become more engaged and understand the benefit the plan sponsor is providing,” he says. Primarily, plan sponsors will be able to see a change in how employees engage with the retirement plan. Moslander says the new site is much cleaner, more modern, simpler and more engaging, whether used on a computer or on a mobile device.

TIAA’s testing of user reactions and leveraging of behavioral research led them to test several concepts. “A lot of financial sites default to a content level for the engaged investor,” Moslander explains. Yet near all their customers—94%, according to Moslander—find that level of detail overwhelming and confusing. Instead, TIAA chose to be radically simple and ditch the financial jargon.

NEXT: From pages to sentences

Perhaps the best example, Moslander says, is the fixed-income guaranteed product, traditionally described in detail in numerous pages. Paradoxically, the longer the explanation, the lower people’s understanding. “Today, it’s sentences,” he says, “that get the essence of what the product provides. It is the most significant thing we’ve done.”

Another concept borrowed from behavioral economics is attention economy. “Most people get way more information than they can use,” Moslander points out. The danger is that people can find themselves drowning in too much information, so the site tries to be sparing of the individual’s attention economy with carefully chosen colors that contrast (black and white, or another combination that draws the eye), attractive font size and enough white space on the page. This way, people can easily find the most important information without a lot of clutter or distraction

The user experience was built on mobile use, according to Moslander. “What do people do on a phone? They scroll. So we made this scrollable rather than link to link, rather than a page-view experience.”

As participants grow more accustomed to engaging digitally with sites such as Amazon, they look for that similar ease of experience in other sites. “We think that by making our digital and mobile experience more relatable to other digital experiences, plan participants are going to engage more frequently,” Moslander says.

“We’ve so simplified the delivery of the information that the reasoning is, participants won’t have to go back to their plan sponsors with questions,” Moslander says. “They’re going to be able to get the information in digestible, simple language. Complexity can be the great enemy of understanding—or even action.”

The site offers more self-service, which could take some off the burden off plan sponsors. Whether it’s getting retirement illustrations or seeing what an accumulation could bring as retirement income or running different scenarios around inflation or executing loans, the site is fully transactional but simple and intuitive.

“We are not changing our heritage or mission,” Moslander says emphatically. TIAA’s mission—delivering retirement products and services to the nonprofit market—is unchanged but is now clearer through the rebranding and the look and feel of the site’s redesign.

The new site is now live at TIAA.org.

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