Data & Research September 14, 2022

Social Security Concerns Drive Early Benefit Claims

Almost half of workers surveyed (48%) have no strategy to generate retirement income, Schroders finds. 

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Many workers fear that Social Security won’t be available when they are ready to retire, according to the 2022 Schroders U.S. Retirement Survey.   

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While 86% of workers age 45 and older are aware that they could boost Social Security payments by delaying the start of benefits, only 11% plan to put off claiming until age 70—when an individual reaches their maximum monthly benefit.

“Delaying Social Security to increase your benefit is a tried-and-true means of generating more income in retirement, but it’s a path few are prepared to take,” Joel Schiffman, head of strategic partnerships at Schroders, said in a statement. “Given increasing life expectancies and widespread concerns about not being able to live comfortably without a paycheck, the advantages of creating a retirement income strategy that maximizes your Social Security benefits can’t be overstated.”   

Schroders found that 32% of respondents plan to claim benefits before 70 because they are concerned that Social Security will be depleted and/or stop making payments, and 31% said they expect to need the money sooner. The research shows that 48% of non-retired workers plan to take Social Security between the age of 62 and 65, while 19% plan to claim between age 66 and 69 and 22% are unsure when they will file.   

Among the near-retiree cohort age 60 to 65, 11% of respondents plan to take their benefits at age 70. Of the cohort, 38% cited as their reason for not waiting that they will need the money sooner.

“This validates what we found in our survey last year when we first saw that only ten percent planned to wait until age 70 to take higher benefits,” Schiffman added.

The survey also found that 48% of respondents contributing to a workplace defined contribution retirement plan—401(k), 403(b) or 457—said their plan offers retirement income products, while 19% said the plan did not have income products and 33% were unsure. Among workers with a plan offering a retirement income product, 89% said they are likely to use the product when they retire, with assets remaining in the plan post-retirement.

The Schroders research found that the five features retirement plan participants want from an in-plan retirement income solution are:

  • Lifetime income (52%);
  • Consistent monthly paycheck-like income (49%);
  • Low fees/cost (42%);
  • Liquidity/Access to money whenever they want (40%); and
  • Protection from market corrections/down markets (39%).

Almost half (49%) of all retiree respondents have no strategy to generate retirement income and plan to withdraw money as needed, the survey found.

Schroders research also shows that 23% of workers nearing retirement don’t know how much money they will need to generate in retirement to live comfortably, and 53% are concerned and 33% are terrified by the notion of regular employment checks ending upon employment separation. 

“More progress needs to be made to help defined contribution participants make the transition from saving to spending,” Schiffman said. “The SECURE Act was a crucial step toward putting retirement income front and center and made it easier for plan sponsors to introduce insured solutions into [defined contribution] plans. However, more needs to be done to educate participants on the importance of higher income replacement, and that comes from planning for retirement income early in their careers.”

The Schroders 2022 U.S. Retirement survey was conducted by 8 Acre Perspective among 1,000 U.S. investors nationwide age 45 to 75 from February 17 to February 28.

Compliance September 13, 2022

PANC 2022: Reg BI Compliance Tips From the SEC

The enforcement of Regulation Best Interest is currently one of the major projects at the Securities and Exchange Commission.

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The first day of the 2022 PLANADVISER National Conference, held this year in Scottsdale, Arizona, featured an in-depth discussion with three staffers at the Securities and Exchange Commission.

The speakers were Jacob Krawitz, senior special counsel in the Division of Investment Management; Kelly Shoop, branch chief in the Office of the Chief Counsel in the Division of Trading and Markets; and Roberta Ufford, senior special counsel at the Analytics Office’s Industry Specialist Unit of the Division of Investment Management.

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The SEC speakers discussed the ongoing enforcement of the Regulation Best Interest package, which is now in full enforcement. They also covered other SEC regulatory efforts, including proposed regulations concerning money market funds, ESG investments and cybersecurity.

As the staffers emphasized, the enforcement of Reg BI is now in full effect, as is the SEC’s updated interpretation of the fiduciary duty as prescribed by the Investment Advisers Act. This means advisers and broker/dealers alike must be cognizant of the fact that “suitability” is not a sufficient standard when it comes to making product or account recommendations.

According to the panel, under Reg BI, when making a recommendation to a retail customer, a brokerage professional must act in the best interest of the retail customer at the time the recommendation is made—without placing their own financial or other interest ahead of the retail customer’s interests. This general obligation is satisfied only if a brokerage professional complies with four specified component obligations applying under Reg BI, as follows:

  • The disclosure obligation requires that brokerage professionals provide certain required disclosures before or at the time of a recommendation, addressing the merits of the recommendation and the details of the relationship between the broker and the retail customer;
  • The care obligation requires that brokerage professionals exercise reasonable diligence, care and skill in making the recommendation;
  • The conflict of interest obligation demands that brokers establish, maintain and enforce written policies and procedures reasonably designed to address/mitigate conflicts of interest; and
  • The compliance obligation orders brokers to establish, maintain and enforce written policies and procedures reasonably designed to achieve compliance with Regulation Best Interest.

The panelists noted that Reg BI casts a wide net, and explained that the determination of whether a broker/dealer has made a recommendation that triggers the application of Reg BI turns on the facts and circumstances of a particular situation. Therefore, whether a recommendation has been made is not susceptible to a “bright line definition.”

The SEC staffers also noted that factors considered in determining whether a recommendation has taken place include whether the communication could be reasonably viewed as a call to action, or if it can be reasonably viewed as likely to influence an investor to trade a particular security or group of securities. As a rule of thumb, the more individually tailored the communication to a specific customer or group of customers about a security or group of securities, the greater the likelihood that the communication may be viewed as a “recommendation.”

Importantly, the speakers pointed out, Reg BI does not apply to investment advice provided to a retail customer by a dually registered professional when acting in the capacity of an investment adviser. This is true even if the retail customer has a brokerage relationship with the dual-registrant or the dual-registrant executes the transaction in a brokerage capacity. Furthermore, to trigger the best interest standard, a recommendation does not have to be positive in nature. That is, an explicit hold recommendation also triggers Reg BI, as do implicit hold recommendations that are the result of agreed-upon account monitoring between the broker/dealer and retail customer.

The panel pointed to the following practices that firms may consider putting in place to avoid Reg BI issues:

  • Avoid compensation thresholds that disproportionately increase compensation through incremental increases in sales;
  • Minimize compensation incentives for employees to favor one type of account over another, or to favor one type of product over another, such as proprietary or preferred provider products, or comparable products sold on a principal basis;
  • Eliminate compensation incentives within comparable product lines by, for example, capping the credit that an associated person may receive across mutual funds or other comparable products across providers; and
  • Implementing supervisory procedures to monitor recommendations.

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