Trendspotting

Older Workers on the Rise

But how productive are they?

A growing portion of the work force is older than age 60, but this has not negatively affected work force productivity.

The two main reasons for the increase in older workers are the size of the Baby Boom generation and the fact that labor force participation rates among those ages 60 to 74 have grown, according to a report from the Center for Retirement Research at Boston College, “The Impact of Population Aging and Delayed Retirement on Workforce Productivity.”

“There are enormous differences between the labor force participation rates of older Americans, depending on their level of schooling,” says Gary Burtless, author of the report. “Research shows that people with limited education have low employment rates in old age, while those with college and advanced degrees tend to remain in the work force longer.”

If less productive workers selectively exit the work force at younger ages, he says, the average productivity of those older workers who remain may compare favorably to the average productivity of the young. A surge in the percentage of the potential work force that is older may simply increase the proportion of the work force that consists of comparatively skilled older workers.

“If worker productivity has been harmed by the surge of older workers into the labor force, the fact is not evident in the earnings statistics for the elderly themselves,” says Burtless.

He explains that, using hourly wages as a standard benchmark for measuring individual worker productivity, research has shown that workers between ages 60 and 74 are currently paid more than the average worker of age 25 to 59. The hourly pay premium for older men was about 20% in 2010 and about 10% for women.

Burtless adds that, while other benchmarks show a somewhat less favorable picture, all show considerable improvement in the relative position of aged workers compared with the non-aged. None of the indicators of male productivity, he says, suggest older male workers are less productive than average workers of ages 25 through 59.

“The expectation that older workers will reduce average productivity may be fueled by the perception that the aged are less healthy, less educated, less up-to-date in their knowledge and more fragile than the young,” Burtless says. While these images contain some grains of truth, he says, they do not necessarily describe the people who choose to or who are permitted to remain in paid employment at older ages. —Kevin McGuinness

Right Advice Can Be a Struggle

Participants want counsel they can trust

Almost half the respondents (48%) to TIAA-CREF’s second annual Financial Advice Survey said it is hard to know which sources of financial advice can be trusted.

Key findings from the survey reveal retirement plan participants’ lack of trust and comfort in discussing financial advice. The survey also pointed to perceived cost and lack of time as additional factors that inhibit individuals’ advice-seeking.

“One of the things that came up is that people are struggling to find trusted advice,” says Dan Keady, director of financial planning at TIAA-CREF in Charlotte, North Carolina. “That 48% is a big number. More than ever, people are saying they need trusted advice.”

About one-third of survey participants said they dislike talking to anyone about their finances. In addition, a third of respondents said they lack the time to get proper financial advice, and two-fifths said they believed good financial advice would cost more than they can afford.

Yet some results were encouraging. People are saving for retirement and starting to focus on how to manage and leverage assets in retirement. The survey also found that 63% of those who received financial advice sought information on saving for retirement, compared with 52% in 2012.

Advisers could see growing interest in annuitization, Keady says, and those who want to ensure their conversations with plan participants are relevant should also be prepared to give advice on saving to meet health care expenses in retirement. “Those two things will drive conversations going forward,” Keady says. “We’re starting to see more and more people asking about these needs.”

Fifty-four percent of respondents who received advice said they were looking for information on how to make retirement savings last—up from 43% in 2012. “Many people have focused for a long time on saving for retirement,” Keady says, “but at some point you have to convert that savings into an income you can’t outlive. This is a growing trend, and a very important one.” People have also begun to ask for more advice about planning for medical expenses in retirement—nearly half (43%) this year, compared with 35% in 2012, he says.

Education a Priority

This year’s survey showed an uptick in people seeking advice with some tie-in to education, whether it was on saving for schooling or addressing student loans—up from 30% in 2012 to 40% this year. Even the group of respondents ages 55 through 64 showed a rise in people interested in managing student loans, Keady says.

Unsurprisingly, the survey found that advice and tools designed specifically for different groups hold appeal. Four in 10 respondents seeking advice use financial service provider websites or online tools to seek information—an increase of more than 15 percentage points from a year ago. About half also said webinars (47%), live seminars (46%) and the ability to interact with someone online (45%) would be helpful means to receive financial advice.

The crucial factor is for people to have access to advice. “The flip side is that people who find advice they trust are much more likely to act on it,” Keady says. “This dovetails with what we’ve seen at TIAA-CREF. More than two-thirds of our participants who have in-person advice take action. They save more; they rebalance; they look at asset-allocation strategies.”

Keady points out that advice need not be face to face. More than 50% of participants who got advice through a website took positive financial action. The rise in people using websites and online tools could be attributed to the increased use of handheld mobile devices such as tablets and smartphones. The survey stressed the value of creating advice that can be readily accessible on a website, as well as knowing the population—Generation X—that is most interested in seeking advice electronically.

The key takeaway, Keady says, is that, if people find information they trust that is not too costly—such as workplace advice, or online tools and sites—they can take action to prepare adequately for retirement. —Jill Cornfield

Hard Lessons for Gen Y

The young have taken the financial crisis to heart

While generations of consumers learned important lessons following the 2008 financial crisis, a Fidelity Investments survey found that Generation Y has learned more and has taken the most positive actions, post-crisis.

The survey examined the attitudes and behaviors of investors since the financial downturn began five years ago. It found that 81% of Gen Y—i.e., of those born between 1981 and 1988—now consider themselves more knowledgeable about their finances, compared with 66% of older generations. In addition, when it comes to confidence levels, Gen Y is faring better: Fifty-five percent of this group vs. 47% of older generations said they feel more confident as investors. Additionally, 64% of Gen Y vs. 54% of their elders now save more systematically.

“While the crisis served as a wake-up call for investors of all ages, this study found Gen Y may have experienced the most positive change,” says John Sweeney, executive vice president of retirement and investment strategies at Fidelity Investments in Boston.

“Gen Y remains surprisingly confident despite suffering investment losses—and especially given that many also saw the impact the crisis had on their parents, who were approaching or in retirement,” Sweeney says. “Rather than overreacting, Gen Y has taken a more deliberate approach to their finances, recognizing the need to assume control of their spending and investing habits, and showing a willingness to do things differently. These are important factors when it comes to weathering any financial challenge.”

The survey findings also suggest that Gen Y has a different approach than older generations when it comes to making financial and investment decisions. They have adopted:

• A more socialized financial experience: At the start of the financial crisis, Gen Y turned to family and friends for financial advice more than other generations did (37% vs. 23% of Gen X and 25% of Boomers). They were also more likely to conduct online research (34%) and use online tools and calculators (23%);
• Emergency funding: Although 26% of Gen Y respondents said their personal debt increased these past five years, 71% started to maintain an emergency fund, and 48% increased their emergency savings. In comparison, while 21% of Boomers saw their personal debt increase, slightly more than half (52%) started to maintain an emergency fund, and only 29% increased their emergency savings; and
• A focus on saving: One-third (34%) of Gen Y respondents increased household liquid assets, and 39% increased their contributions to a tax-advantaged retirement savings account. Employer-sponsored retirement plans (32%), individual retirement accounts (IRAs) (21%) and personal real estate (29%) also increased in importance for Gen Y.

The “Fidelity Five Years Later” study was conducted online among 1,154 adult investors by GfK Public Affairs and Corporate Communication, using GfK’s KnowledgePanel. —PA

Hesitant to Go Mobile

Few participants use smartphones for investing

Recent research found that, while a large percentage of retirement plan participants now own smartphones and tablets, many still hesitate to use such technology for investment-related purposes.

Seventy-one percent of participants own smartphones, and 57% own tablets, according to a Spectrem’s Millionaire Corner study. These figures are approaching those for PC/Mac ownership, which is at 79%. Only 4% of participants used none of these technologies.

The study found that smartphone usage is nearing PC/Mac usage among participants under the age of 35. Forty-four percent of this group said they would use a smartphone as their primary means of following the news, compared with 46% for PC/Mac use. Four percent said they would choose a tablet as their primary source.

However, the study found that both age groups were hesitant to use their smartphones to find information on financial products and services. Sixty-six percent of participants younger than age 35 said they would use their PC/Mac, compared with just 16% who would use their smartphone. Older investors were found to be more likely to use a PC/Mac (68%), followed by 11% who preferred tablets and 4% who favored smartphones.

In terms of corresponding with a financial adviser, the study found that 28% of the under-35 group were willing to use their smartphone, while only 7% of the 50-and-over group would do so. With the older group, only 2% preferred to use a tablet for this.

When it comes to buying and selling investments via mobile technologies, only 14% of participants under 35 would use their smartphone to conduct investment transactions. That number dropped to 6% among participants ages 35 through 49, and to 4% among participants 50 and older.

To access financial market updates, 18% of participants ages 35 and older would use a smartphone, while 10% preferred a tablet.

Of participants ages 50 and older, 54% said a PC/Mac would be their primary choice for news, compared with 18% who preferred a tablet and 13% who would use a smartphone.

When it comes to accessing personal account information via mobile technology, 34% of participants under 35 said they would use their smartphone, while only 14% of those ages 50 and older would do so, and 11% of this age group would use their tablet. —Kevin McGuinness

Readiness Needs a 360° View

Getting participants to save more

The most important thing plan advisers can do to impact 401(k) plans is get participants to save more. That is the focus of “A 360 Degree Approach to Preparing for Retirement,” a report commissioned by Principal Financial Group that reviews all of the players that affect a retirement plan: asset managers, plan sponsors, advisers—and the participants themselves.

“All say the same thing,” says Julia Lawler, senior vice president at The Principal, in Des Moines, Iowa. “Participants aren’t saving enough for retirement.”

To achieve a solid retirement outcome, “advisers need to spend time with plan sponsors, helping them to think through strong plan design,” she says. “It’s not just picking investment options, it’s how plan design can help participants achieve good outcomes.”

In previous research, The Principal has noted that plans with automatic enrollment outperform those without it, and plans that auto-enroll at a 6% deferral rate do better than those with a lower default. Plans that default participants into a target-date fund (TDF) are more successful in retirement outcomes than those that do not.

Lawler would like to see more education. Participants who engage with a financial adviser or professional are more likely to demonstrate positive financial behaviors, and education is the answer for participants who feel squeezed financially due to competing financial needs, Lawler says.

Plan sponsors must continue to actively inform participants about how they are doing, she says. “Things change for individual[s], and they need someone to show them how they are progressing,” she notes. —Jill Cornfield

Learning Via Social Media

Many research retirement through channels such as LinkedIn

A nationwide survey of American workers eligible to participate in an employer-sponsored defined contribution (DC) retirement plan showed a growing appetite for learning about retirement and other financial topics through social media—though the way information is consumed varies by age, gender and income level. The survey was conducted by Brightwork Partners on behalf of MassMutual Retirement Services.

Findings indicated that 74% of women routinely use Facebook vs. 59% of men. The opposite holds true for LinkedIn; about twice as many users are men—32% vs. 15% of women. The gender difference is more pronounced when compared with 2011 results. Twitter was also more popular with male users—17% compared with 10% of women.

Participants who actively contribute to their plans are more likely to use social media than those who do not, indicating higher engagement overall. Likewise, participants who also save outside of their workplace plan are even more likely to use social media, including Twitter, LinkedIn and Facebook, in that order. LinkedIn is used by 36% of participants with household income (HHI) exceeding $100,000 but by only 15% of participants with HHI of $50,000 or less.

Seventy-one percent of plan participants “routinely” use one or more social media sites, according to the survey. However, the percentage of participants who have used social media for information or advice about their workplace plan has grown from 5% to 6% since 2011. While the number appears small, it equates to approximately 5 million participants who have used social media for this purpose, indicating that it is used to supplement rather than replace the participant’s primary retirement plan website.

“Participants in their 30s are far more likely (14%) to use social media for retirement information or advice than older or younger participants, and this number has increased from just 6% in 2011, a significant jump,” says Elaine Sarsynski, executive vice president of MassMutual’s Retirement Services division and chairman of MassMutual International LLC, in Springfield, Massachusetts. “This may represent an important window of opportunity to reach these participants at a critical time in their retirement savings life cycle.” The survey also found that, among participants aged 50 or older, 57% use Facebook.

In addition, the survey showed that retirement tops the list of savings objectives. “Saving enough for retirement” has surpassed “keeping up with monthly expenses” as participants’ biggest financial worry, up to 24% from 18% in 2011. It was also cited as a major savings objective by 63% of participants—21 points higher than the second most-cited worry, “paying down debt.”

On a positive note, findings indicated that participants are, in general, saving more, with the average retirement savings rate among those surveyed at 10.5%, up from 9% two years ago.

“Social media usage is up across the board since 2011, with the biggest increase [seen] in LinkedIn usage by participants, at 24%, which is a 50% increase,” says Merl Baker, principal at Brightwork Partners, in Stamford, Connecticut. “Facebook has broad appeal across all age groups, but clearly there is an opportunity for providers to target messaging by gender, age and income. LinkedIn is the dominant media for business purposes and appeals to all age groups.”

The survey was conducted among 2,081 defined contribution plan participants who are eligible to participate in a 401(k), 403(b), 457 or similar workplace retirement plan. Data was trended to the initial survey conducted in June and July 2011.—Kevin McGuinness

Questioning Social Security

Less than one-third (31%) of Americans believe Social Security will still be around when they retire, according to a new survey from legal information website FindLaw.com. Another 30% said it will not, and 39% said they are unsure.

The survey showed faith in Social Security is higher in older generations. Among those ages 55 and older, 64% believe they will receive a Social Security check after they retire; only 11% of people between the ages of 18 and 24 expect Social Security to still be around when they retire. For those between 25 and 34, the percentage is 18%; for ages 35 to 44, it is 24%; and for those 45 to 54, the figure is 29%.

Findings also revealed that the majority of retirees surveyed (56%) say Social Security accounts for more than half of their retirement income. In fact, 36% of retirees say their Social Security check makes up more than 75% of their retirement income or is their sole source of retirement income.

“Our survey found that people have concerns about the future solvency of the Social Security system,” said Stephanie Rahlfs, an attorney-editor with FindLaw. The survey was conducted using a demographically balanced sample of 1,000 American adults. —Kevin McGuinness

Next Five Years Could See Many Retiring

Nearly one-fifth of workers could call it quits

As many as 18% of workers in the United States could retire in the next five years, according to an ADP Research Institute report, “Age and Retirement Benchmarks: Key Analytics That Drive Human Capital Management.”  Further, only 9% of employees in the hospitality industry are expected to work until retirement. The public administration industry has the highest percentage of employees (28%) expected to work until retirement. Other industries included in the study were manufacturing, health care, education and retail. The study assumed an average retirement age of 61.

“While there is no guarantee that everyone who reaches the average retirement age will actually stop working, our research indicates several industries could be facing a significant loss of skilled talent over the next five years,” says Ahu Yildirmaz, senior director of market insights at ADP Research Institute in Roseland, New Jersey. “Retirement data provides a critical glimpse into the future of a company’s work force.”

According to Yildirmaz, businesses will want to assess how their own work force compares with the averages and consider strategies for recruitment and training in order to replace the significant loss of knowledge, experience and company culture that can be expected.

The study also found that the number of workers reaching retirement age in the next five years will vary widely across industries. Public administration and health care services can expect large numbers of employees to leave the work force, given that workers in these industries have average ages of 47 and 43, respectively. By contrast, the average age of hospitality workers is 34, and for retail the average age is 36.

The analysis in this report is based on aggregated, anonymous, real-world data from approximately 52,000 U.S.-based organizations comprising about 16 million active workers. The data is from the fourth quarter of 2012. —Kevin McGuinness

Retirement Readiness Lags

Millennials, women and low-income workers most at risk

Describing Millennials as the “lost generation” when it comes to retirement planning, Financial Finesse has released its third annual report on the state of U.S. employee retirement preparedness.

The report also points to women and low-income employees as the two other groups with the most room for improvement before they can reach a financially secure retirement. According to the report, just 17% of both female and Millennial workers, as well as 10% of low-income workers, said they are confident they can meet their retirement income goals.

Overall, only one in five (20%) of those interviewed for the report said they were on track to meet their previously determined retirement benchmarks. However, this was up from 14% during the survey’s first iteration, released in 2011.

A lower percentage of Millennials (29%) reported having used a retirement calculator to project future income needs this year, compared with the 32% who did so in 2012. A smaller percentage (84%) of low-income respondents reported participating in their workplace’s 401(k) plan than the 86% observed in 2012.

Even though a greater percentage of employees have indicated taking a risk-tolerance assessment or taking action to rebalance their investment accounts, 61% of respondents indicated they have not taken the time to use a financial calculator to conduct a future needs assessment.

Financial Finesse CEO Liz Davidson, in El Segundo, California, urges plan sponsors and advisers to think more deeply about the lack of interest displayed by younger investors, whose retirement plan payouts are still decades away.

“There is a lot of attention on Baby Boomers’ lack of preparedness, because of their proximity to retirement,” Davidson says. “More attention should be paid to the savings behaviors of at-risk groups. Although they have more time than the Boomers and Gen Xers, they face far more economic and financial challenges than any other demographic.”

Such challenges, according to the report, include fewer government and corporate benefits, longer life expectancies, expected increases in taxes and inflation, burgeoning health care costs and extensive uncertainty in the capital markets. 

“We have the largest generation in history facing the largest retirement planning challenges in history,” says Barbara Delaney, founder of retirement plan advisory firm StoneStreet Equity in Pearl River, New York. “We have to do a lot more.” —John Manganaro

Plugging DC Plan Leaks

Plan sponsors take action to reduce loans

Plan sponsors can successfully slow leakage from defined contribution (DC) plans—especially leakage caused by outstanding and defaulted loans borrowed against plan assets—by taking a few pre-emptive steps, an Aon Hewitt white paper found. According to the paper, sponsors should: Add direct debit loan repayment options; reduce the number of loans available to participants; limit loan dollars to those contributed to plan funds by the employee; and increase loan origination fees.

The impact of these changes can be dramatic. Employers that have a direct debit loan repayment option, for example, see 22% fewer defaults than those that do not offer this option.

Another telling figure from the study: Plan sponsors that allow participants to have only one outstanding loan at a time report loan balances of $1,600 less, on average, than the balances among sponsors whose plan participants may draw two loans or more.

Companies that prohibit loans on employer-provided dollars in retirement plans see $370 less in average outstanding loan balances compared with companies that allow employees to borrow dollars paid in as match contributions.

The most effective way to cut down on leakage and outstanding loan dollars? Charge more in loan initiation fees. According to the study, the average outstanding balance of loans that charged an origination fee of $50 or less is $4,600-plus higher than the average outstanding balance of loans that charged $100 or more. —John Manganaro