In Practice November 17, 2006

Support for Family Members Alters Retirement Plans

A survey conducted for Putnam Investments found 15 million workers age 45 or over are providing financial support for an aging parent or adult child, and that is altering their retirement plans.
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According to a press release on the survey, about 6.2 million of the approximately 29.3 million working adults age 45 or older that have at least one living parent provide financial support to their parents. About one-quarter of this group said their efforts to provide parental support will likely postpone their own retirement or reduce their savings. Forty-four percent said they expect to work in retirement as a result.

Additionally, approximately 23.5 million working adults age 45 or older have at least one child age 25 or older, and almost half (45%) said they provide financial support for grown children. About one in four (20%) said their grown children live with them and 4% said they write a rent check for grown children, the release said.

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Of those providing support for grown children, 43% said they expect it will force them back to work after retirement; 38% said they expect to save less; and 29% anticipate delaying retirement. Seventy percent of respondents providing support for adult children said they did not consider that in their financial planning.

Still, despite the negative effect to their retirement plans, 57% of those supporting parents said they are “very pleased” to do so, as did 38% of those supporting their grown children. However, respondents who support parents said lessons learned include that they should have saved money specifically for parental support, used a professional adviser to help plan for retirement, and bought long-term care insurance for their parents.

“The We Generation: When Retirement and Family Needs Collide” study was conducted online by Brightwork Partners in August 2006 for Putnam Investments and includes interviews with 5,419 respondents – of which 1,740 were working adults at least age 45 with at least one living parent and 1,330 were working adults at least age 45 with at least one child age 25 or older.
In Practice November 17, 2006

Pru: Young People Back Auto Plan Features

Two-thirds of America’s youngest workers say they would be “grateful″ and “optimistic″ if their employer automatically enrolled them in the company’s defined contribution plan, according to a new poll.
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A Prudential Retirement news release said its Fifth Annual Workplace Report on Retirement Planning found that 66% of workers in the 21 to 30 year old age group – which Prudential labels the “Millennial Generation” – would feel “grateful” or “optimistic” if employers automatically enrolled them in workplace-provided defined-contribution (DC) plans. That would produce better financial results and lead to more-secure retirements, many workers felt.

Moreover, the survey revealed that young workers would be equally enthusiastic about an automatic approach to other key components of DC plan management, including

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  • mandated minimum-contribution rates. Some 54% of young workers said they would feel “grateful” or “optimistic” if plan sponsors imposed this requirement.
  • a program of gradually but automatically increasing contribution levels. More than half of the respondents said they would support this plan feature.
  • defaults into investment options that employ asset-allocation modeling based on age and risk-tolerance. A clear majority said “go for it” or “give it a shot.”

Reacting to the entire spectrum of features, 57% of young workers said “no doubt about it” or “feeling good” when asked about automatic defined contribution plans. Some 53% said putting their workplace-provided program on auto pilot would deliver “far superior” or “somewhat superior” retirement outcomes when compared with the current do-it-yourself approach.

“Today’s youngest workers are keenly aware that the existing ‘do-it-yourself’ approach to managing workplace-provided defined contribution programs isn’t delivering the retirement security Americans want and need,” said John Kim, president of Prudential Retirement. “In this environment, our survey demonstrates that the nation’s youngest workers would welcome a ‘radical’ new approach, one that effectively replaces individual accountability with professional management.”

The Prudential survey also found that support for a new approach to defined contribution plan design isn’t limited to the Millennial Generation.

Responding to a similar set of questions, the oldest component of America’s workforce – Baby Boomers over the age of 55 and pre-retirees under the age of 64- not only backed the autopilot idea, they enthusiastically recommended the approach to younger workers. By an overwhelming margin, they also agreed that they would be better prepared for retirement today if automatic plan features had been in place 30 years ago.

In addition, approximately 70% of older workers favored the full menu of automatic plan features over “doing it yourself,” responding “go for it” or “feeling very good” when asked to estimate the long-term effect of an auto-pilot approach on retirement security. Not surprisingly, older workers also strongly endorsed the automatic defined contribution plan concept for younger workers.

More information is at www.prudential.com.

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