Data & Research April 5, 2019

Education Key to Helping Different Cultural Groups Manage Retirement Expectations

Approximately half of the participants surveyed by MassMutual had calculated how much savings they need to retire, with about one-third actually creating a formal plan. However, there were outliers.

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There are differences in retirement planning among different cultural groups, the latest MassMutual State of the American Family (SOAF) Study finds.

Approximately half of the participants surveyed had calculated how much savings they need to retire, with about one-third actually creating a formal plan. However, there were outliers. While 61% of Asian Indian Americans calculated how much savings they need to retire, the most of any group surveyed, just 35% of Indian American families have an actual retirement plan in place. Korean American respondents were the least likely to both calculate how much they need to retire (39%) as well as to create a clear plan for retirement saving (20%), the survey showed.

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Nearly half (45%) of all respondents—with the exception of Korean Americans—plan to retire by age 65 or sooner, with 22% intending to retire at age 60 or before. The most common response for an intended retirement age was, “I don’t know,” with 26% saying they are unsure.

Again, a few groups had different expectations. Twenty-five percent of African Americans and 26% of Chinese American respondents plan to retire at age 60 or younger—more than any other groups—and only 10% of Korean Americans said the same, the least of any group. Korean Americans were more than twice as likely as any group to plan to retire later than age 70 or to say they don’t ever expect to fully retire.

One in five survey respondents overall indicated they were “extremely confident” in their projected retirement age, with African Americans (30%) and Hispanic Americans (24%) expressing the most confidence. Asian Indian Americans (12%), Chinese Americans (13%) and Korean Americans (14%) were the least confident.

How to help different cultural groups with retirement planning

“It’s important to note that multicultural communities aren’t monolithic when it comes to retirement,” Wonhong Lee, head of MassMutual’s Multicultural Markets, in Springfield, Massachusetts, tells PLANSPONSOR. “Plan sponsors should be cognizant that the various multicultural communities look at retirement differently and have varying degrees of readiness and timetables for retirement.”

For example, he says, Korean Americans were less likely to have created an actual retirement plan, and that indicates a clear need for more education at the workplace, especially if the workforce is largely diverse.

“Many people anticipate retiring before 65 or sooner, especially African Americans and Chinese Americans. It is especially important to ensure that these communities look before they leap into retirement by performing a gap analysis that compares projected retirement expenses and income,” Lee says. He suggests that an educational seminar for pre-retirees that includes topics such as defined contribution (DC) plan catch-up contributions or projected expenses for medical and long-term care might be useful so employees understand their likely liabilities as they age.

Meanwhile, some people say they never anticipate retiring, and that may be unrealistic. Again, Lee suggests education about how likely it is to continue working into advanced ages may help.

Retirement income and longevity

Overall, 54% of survey respondents indicated they expect to receive income in retirement from a pension. That compares to 63% of African Americans, 63% of Asian Indian Americans, and 59% of Hispanic Americans on the high side and 10% of Chinese American respondents on the low end.

The biggest source of retirement income overall is tax-favored retirement savings vehicles such as 401(k) and 403(b) plans and individual retirement accounts (IRAs) (33%), the survey found. Hispanic American respondents (28%) were least likely to depend upon such sources of income. Social Security (22%) was the next largest source of anticipated retirement income overall, with the differences between most cultural groups being a percentage point or two. Asian Indian American (18%) respondents had the lowest expectations for Social Security as an income source.

Nearly two-thirds (65%) of respondents say they expect to live two decades or more in retirement and 42% say they expect to live 20 to 29 years after retiring.

African American and Chinese American respondents were most likely to plan to retire at earlier ages and also had the highest expectations for living longer in retirement.  According to the survey, 75% of African American and 68% of Chinese American respondents indicated they expected to live 20 years or more once retired. Thirty-six percent of African Americans expect to live 30 years or more in retirement, the longest of any group by far.

“Expectations for longer retirements are very realistic and in line with trends tracked by government organizations,” Lee says. “The important factor for retirement planning is to start early and sit down with a financial professional or utilize resources such as a retirement calculator to take steps to help ensure that your retirement income will last as long as you do, no matter what financial markets or unexpected life events may bring.”

Encouraging retirement planning among employees

Education is key to encouraging more retirement planning behaviors among employees overall, according to Lee. Working with the plan’s financial adviser and a retirement plan recordkeeper can help provide access to educational programs on retirement planning and financial planning.

“Plan sponsors can be supportive of retirement plan participants—and those who have not enrolled in the plan—by sponsoring educational seminars on the need for retirement planning, investing, the power of compound earnings and starting to save early, and conducting a gap analysis to ensure they’re on track,” Lee says. “Plan sponsors also should continuously promote their retirement plan, educating employees on contribution limits, saving pre- or post-tax, the catch-up provision, taking advantage of available matching contributions, and other features.”

According to Lee, plan sponsors should keep in mind that not every employee connects to information in the same way. Education and information should be provided in a variety of ways, including online via mobile apps, tablets and desktop computers, in person, on the phone and, where appropriate, through the mail. “And sometimes, you may even need to provide information in different languages,” he concludes.

More information about the survey is here.
Client Service April 4, 2019

Tailoring Plan Designs to Reflect Shorter Employee Tenure

Recent research reports suggest average employee tenure in the U.S. has trended downward; retirement industry experts agree this fact should inform plan design discussions and participant-level services.

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A recent Employee Benefit Research Institute (EBRI) brief examined employee tenure among American workers, finding that in the past 35 years, the median tenure for workers of all wages and salaries, ages 25 or older, has remained at five years.

However, for men ages 25 to 64, the median tenure stood at 10.2 years in 2018—a stark drop from the 15.3 years measured in 1983 but not as low as the 9.5 years measured in 2006. Women in the same age group held a median tenure of 4.9 years in 2018, a slight decline from 5.0 years in 2016.

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Even as shorter tenures are linked to low unemployment rates and boosts in the economy, the EBRI report suggests the tenure drop correlates to a potential decline in retirement readiness. Lower levels of employee tenure may reduce the percentage of the working population that is eligible for or contributing to a defined contribution (DC) plan at any given time. In addition, even when shorter-tenure employees join a DC plan, they may face vesting periods and may need to draw on retirement assets to meet emergency savings needs.

Retirement plans can attract and retain talent

According to Timothy Brown, director of retirement plans business at Anderson Financial Strategies, when plan sponsors have a high quality 401(k), this adds significantly to employee satisfaction in the workplace, which in turn helps the company create and keep highly engaged employees.

“The retirement plan helps with recruiting and even training costs,” Brown suggests. “Emphasizing the retirement benefit helps participants learn the new company and culture inside and out, and it can create a sort of family feel.”

Joe Connell, partner at Sikich Retirement Plan Services, encourages advisers to work with their plan sponsor clients on a review of how well existing employees actually understand the retirement plan benefit being offered. Getting the workforce talking about the retirement plan will encourage greater participation, he says, especially as people learn about what their peers are doing with respect to saving and investing. There can even be a bit of a competitive spirit that develops within a group of workers that are newly engaged in saving for retirement.

And for plan sponsors, the exercise is often quite eye opening, Brown agrees.

“We’ve assisted plan sponsors in polling their employees and asking what they know about the 401(k),” Brown says. “It can be a real eye opener for the plan sponsor when they find out people that have been there for years really know little about the plan.”

Addressing tenure as part of participant education  

From the plan design perspective, Brown and Connell agree that automatic enrollment and automatic escalation are two key features that can help address shorter employee tenures from the retirement readiness perspective.

One additional idea Brown shares is to have longer-tenured employees act as advocates for the retirement benefit.

“Adding them as a resource for shorter-tenured employees can have one of the biggest impacts,” says Brown. “Some employees will go out and talk to the younger workers about how this retirement plan is critical for them, and that sort of thing often hits home. You are learning about the plan from somebody you’re working with every day, not just the plan sponsor.”

Craig Copeland, senior research associate at EBRI, who wrote the brief on employee tenure among American workers, echoes the same thought, emphasizing the credibility of longer-tenured employees in the eyes of new workers.

“Hearing specific examples of people doing well tends to help others understand what they can do to reach the same goals or benchmarks,” Copeland says.

Brown compares this relationship, between longer-tenured and younger employees, to the same rapport that can build over time between an experienced plan adviser and a novice plan sponsor. Just how younger participants can lack an understanding of key retirement plan features, when it comes to employee benefits, employers don’t always fully recognize the importance.

“For advisers, the key is being able to show both the plan sponsors and participants that the retirement plan can be a strong benefit,” Brown concludes.

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