Participants Want Help with Income Strategies

A recent webcast, hosted by State Street Global Advisors (SSgA), addressed how plan sponsors can help participants transition from saving for retirement to focusing on retirement income strategies.

Fred Axsater, managing director SSgA and head of global defined contribution (DC) said that the results of SSgA’s recent DC Investor Survey found many participants are asking if their savings will last them throughout their retirement. He observed that since participants want to have around a 70% replacement of their income during retirement, they are very willing to embrace help from plan sponsors to go about achieving that.

“The process of accumulation to decumulation, from saving for retirement to generating income in retirement, has never been more important,” said Axsater. “There is definitely more focus on this as a priority.”

Jody Strakosch, principal, Strakosch Retirement Strategies, a retirement benefits consulting firm, told webcast attendees the most common question she encountered from participants was how they can generate and secure income in retirement. “Only about a quarter of participants feel confident that they have saved enough to retire comfortably,” she said.

Dean Jarnow, director of financial products and services, Portico Benefit Services, an asset management firm, agreed that retirement readiness is very important, adding that participants need to ask questions like what does retirement mean to them personally, as well as what savings and investment targets are appropriate for them to achieve.

The presenters recommended plan sponsors: (1) Begin a dialogue with participants about retirement goals and what features they want in a retirement income product; (2) Consider providing employees with five years or less to retirement some income planning assistance; (3) Engage and provide support to preretirees as they transition to retirement; and (4) Consider providing an in-plan retirement income product to help participants reach retirement security and readiness.

Jarnow said one issue with retirement planning and retirement income products is participants look at a figure in a projection and want to know what that dollar value will mean to them personally during retirement, especially in light of factors like inflation. Strakosch commented that people are very used to operating in a paycheck environment and that transitioning away from that during retirement can be scary for some.

Axsater said the SSga survey found most participants want an income product for retirement, with ones featuring scenarios with high income levels being very popular. “We also found that participants are less confident of saying exactly when they can retire,” he said. “They definitely need more support from plan sponsors in moving from accumulation to decumulation.”

Control over their income is still very important to some participants, said Jarnow. “Many still try to manage things on their own, doing withdrawals and other self-managed options. Having a lifetime income stream and ceding that personal control is a tradeoff for participants.”

According to Strakosch, “It can be a matter of having liquidity versus having a lifetime income stream. When looking at in-plan versus out-of-plan solutions, plan sponsors need to evaluate the goals of the plan and those of the participants.”

Axsater commented that in addition to surveying participants, SSgA interviewed 40 plan sponsors and found most are worried their participants are not aware of what lifetime income solutions are available.

“We also found that participants attach a high importance to generating a high income during retirement. In fact, they will often give up having inflation protection to achieve that high income,” he said. On the other hand, plan sponsors were found to better recognize the importance of inflation protection of retirement income and were not so willing to give this up.

“Educating participants on the benefits of inflation protection is definitely needed,” said Strakosch.

She also pointed out plan sponsors need to realize younger participants are expecting more help from their employers when it comes to retirement planning. “Plan sponsors need to take that into account and to determine what their role will be in helping people move towards retirement.”

Jarnow added that plan sponsors need to realize that while some participants do not have enough saved for retirement, some do but don’t know it. “So education in this area is definitely needed,” he said.

Axsater said workforce management has also come up as a related issue for plan sponsors. “Employers will need to start figuring out how to deal with the scenario of workers not retiring,” he noted.

For more information about the SSgA DC Investor Survey, see "Monthly Income Guarantee a 'Must Have' for Participants."