Calculators, Advisers Can Improve Confidence

The Retirement Confidence Survey (RCS) from the Employee Benefit Research Institute (EBRI) has consistently found a relationship between the level of participants’ debt and retirement confidence.

According to the 24th annual RCS (see “Retirement Plan Offering Strongly Linked to Confidence”), just 3% of workers who describe their debt as a major problem say they are very confident about having enough money to live comfortably throughout retirement, compared with 29% of workers who indicate debt is not a problem. On the other hand, 49% of workers with a major debt problem are not at all confident about having enough money for a financially secure retirement, compared with 16% of workers without a debt problem.

“It is very difficult to create a savings plan for retirement without an equal focus on spending,” Greg Burrows, senior vice president of retirement and investor services at The Principal Financial Group, an underwriter of the study, tells PLANADVISER.

Burrows says advisers need to help participants prepare a plan for retirement that is focused both on spending and savings. “Savings will not occur unless they have the right strategy for spending and managing debt,” he contends. “Advisers are in a great position to help employees balance this.”

He adds that taking action equals more confidence. Those who participate in a retirement plan—defined contribution, defined benefit or individual retirement account—are more confident in their ability to save for a comfortable retirement than those who do not (24% very confident vs. 9% very confident, respectively). In addition, those who calculated how much savings they need (25% vs. 13%) and those who got investment advice from an adviser (29% vs. 15.7%) were more likely to indicate they are very confident than those who did not.

For the study, workers participating in their current employer’s retirement savings plan were provided with an estimate of how much annual income their plan would provide in retirement based on the Department of Labor’s Lifetime Income Calculator. The large majority of those who were provided with this estimate found it very (36%) or somewhat (49%) useful.

Burrows notes that only 40% to 45% of workers are using calculators, so many workers are apparently guessing their retirement income needs. “This needs improvement,” he says.

The RCS found 19% of workers and 25% of retirees reported they have obtained investment advice from a professional financial adviser who was paid through fees or commissions. Those with higher levels of financial assets are more likely than those with lower levels of assets to have gotten this advice, but it is unclear whether this is because higher-asset individuals feel a greater need for investment advice, have better access to professional advisers, because professional advice increases the likelihood of building asset levels, or because those with more assets are better able to afford it.

Those who obtained investment advice did not always follow it, however. Twenty-seven percent of workers who obtained advice say they followed all of it, but more only followed most (36%) or some (29%). Retirees are more likely to report following all of the advice (38%).

The reasons most often offered for not following all of the advice include:

  • Not trusting the advice (34% of workers and 31% of retirees);
  • Having other ideas or other plans or goals (16% of workers and 29% of retirees);
  • Not being able to afford taking the advice (20% of workers and 6% of retirees);
  • Circumstances changing so advice was no longer applicable (4% of workers and retirees); and
  • Getting better advice somewhere else (4% of workers and 9% of retirees).

Employees are worried about debt and the cost of living, Burrows notes; they need to know how to free up money for savings. “Having a long term plan that focuses on both [spending and saving] is really important to improve outcomes for participants,” he says.

Offering advice is an important component to plan sponsors doing the right thing for participants, Burrows contends.  Advisers can play a critical role as quarterback with helping plan sponsors develop plan design. They can drive change and help in the implementation.

Results of the 24th annual RCS, conducted by the Employee Benefit Research Institute (EBRI) and Greenwald & Associates, Inc. are published in the March 2014 EBRI Issue Brief, available online at  Several fact sheets, detailing various aspects of the survey’s findings, are also available. The survey was underwritten by nearly two dozen organizations.