Products March 13, 2012

BMO Initiates Retirement Readiness Program

BMO Institutional Trust Services initiated a Retirement Readiness program to help employers better prepare employees for retirement.
Reported by

The program consists of bi-monthly communications with employers that sponsor 401(k) or other retirement savings plans. “Our goal is to provide employers with innovative ideas and tools that prompt employees to address key retirement issues,” said Todd J. Perala, director, relationship management of BMO Institutional Trust Services.  

Issued in March, the first Retirement Readiness initiative is designed to help employers persuade their employees to engage in an individualized retirement readiness boot camp.   

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

The logistics of a readiness boot camp are: 

  • Employees who plan to retire within five years estimate monthly retirement expenses, taking into account household and food expenditures, standard health care, mortgage and other loan payments (if applicable), taxes, and miscellaneous expenses, including apparel, dining, travel and entertainment.  
  • Employees are then assisted in approximating their total monthly income from Social Security, retirement jobs and investments. Future investment income should represent no more than 4% of financial assets, calculated on an annual basis. 
  • For a period of four months, employees attempt to remain within self-imposed spending parameters and are urged to keep a careful record of expenditures. 
  • At the end of the boot camp period, employees assess whether they may need to reduce their spending levels in retirement, increase their savings or alter their investment approach. 

Perala noted that many employees nearing retirement have an unrealistic understanding of how much income they will require on a monthly basis. “Self-imposed retirement boot camps compel employees to take a realistic look at the type of lifestyle they will be able to afford when regular paychecks stop,” he said.

Data & Research March 13, 2012

Advisers, Sponsors Can Boost Retirement Confidence

The 22nd annual Retirement Confidence Survey (RCS) by the Employee Benefit Research Institute (EBRI), found workers’ confidence in their ability to afford a comfortable retirement is stagnant at its lowest level.
Reported by

So why hasn’t confidence improved as a result of the improving economy and stock market? Mathew Greenwald, principal, Mathew Greenwald & Associates, co-sponsor of the survey, told attendees at a press conference, it can be explained by workers’ concern about the future of the economy. Only 16% of workers surveyed said they are confident their investments will grow in value, only 8% are very confident the economy will grow at least 3% for the next 10 years, and only 7% are very confident inflation will average no more than 4% for the next 10 years.  

For workers, the only choices are to save more now or work longer (see “Expectations about Retirement Are Changing”). However, Greenwald pointed out the survey indicates workers feel they cannot respond to the current financial stress by saving more. Fifty-eight percent reported they and their spouses are saving for retirement, down from 65% in 2009. In addition, 60% say they and their spouses have less than $25,000 saved, including 30% who have less than $1,000, up from 20% in 2009.  

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

“Workers are falling further behind and they know it,” Greenwald said.  

In addition, Greenwald noted the plan to work longer is risky. Fifty percent of retirees surveyed for the RCS indicated they were forced to retire before they planned to due to poor health, disability or a company downsizing or closure.

So what can retirement plan sponsors do to help? Greenwald says sponsors should consider auto-enrollment and auto-deferral escalation. He pointed out that most employees don’t opt out. The RCS asked workers at what point they would discontinue automatic deferral increases; 27% said at 15% of salary and 20% said between 10% and 14% of salary. “These are good numbers,” Greenwald stated. “This suggests auto-increase will work to get employees to save at acceptable levels.”  

According to Greenwald, plan sponsors and advisers should also make a more effective case for the ability of advisers to help and to explain to participants that advisers are not just going to dictate a percent to save and how to invest it.  

More about the RCS is available at http://www.ebri.org.  See also “Confidence in Ability to Afford Retirement Remains Low.” 

«