Addressing Longevity

Americans are living longer, but many lack an adequate nest egg to provide for a 20- to 30-year retirement.

A study from the Indexed Annuity Leadership Council (IALC) found one in four Baby Boomers has less than $5,000 saved for retirement and nearly one in four (24%) of all respondents has nothing saved.

Jim Poolman, executive director for the IALC, in Bismarck, North Dakota, says the study also found that 60% of Baby Boomers think they will need less than $1 million for retirement, yet, he notes, estimates show they could spend up to $250,000 on health care costs alone.

“People aren’t thinking about the extra [money] needed due to living longer,” he says. Poolman suggests that is the No. 1 thing retirement plan sponsors and advisers can do to help employees prepare for longevity is to educate them about the collective potential costs and expenses that lie ahead. “Part of the reason people are not saving enough is they are not educated about what they’ll need,” he contends. “They need to know they will spend one-quarter million dollars on health care.”

Fredrik Axsater, global head of defined contribution (DC) at  State Street Global Advisors (SSGA) in San Francisco, says plan design features such as automatic enrollment at a reasonable default savings rate—he suggests 6%–plus an employer matching contribution have been good at helping people save, and helping them save more. But he also thinks education is key.

“Providers should show how participant account balances will translate into monthly income on retirement plan statements,” Axsater says. “The account balance tells them nothing. It’s not fancy, but it’s a basic indication of how they are doing.”

Poolman suggests plan sponsors and their advisers provide participants with proper retirement calculators to educate them. He also suggests yearly checkups—a one-on-one with an adviser to determine how the participant is doing, to motivate him to save and to supply education about how much he will need.