Stuart Ritter

PA: What is the most powerful factor in making retirement a reality for most Americans?

Ritter: The biggest driver of outcomes in retirement is individual savings behavior. We want people to have options in determining the lifestyle they want in retirement. And the most important element is how much they’re saving right now. There’s been a lot of talk over the past couple of years about the 2008 downturn, investments and future interest rates. At the same time, if someone is not saving adequately, there’s really little else that they would be able to do to make up for that.

PA: With that in mind, how are plan designs evolving to create better outcomes for participants?

Ritter: It’s still about the use of automated services. While that message is not new, it’s amazing that we have not seen maximized use of automated services so the improvement can be realized for all participants. For years, the approach in this industry was to try to motivate people on their own to do the things they need to do, and frankly, we haven’t been very successful in that. We have finally realized that if people are not going to take action, you need to think about the system you create and what the default is.

If I can give an analogy, years ago when you made yourself a cup of coffee, if you walked away from the coffee maker, it would stay on and burn your house down. Some people decided that setting up a system with that kind of outcome if people did nothing was probably not the best, so now when you make coffee and walk away, the coffee maker turns itself off. That sounds like an obvious thing to have the coffee maker do, but it was many years before that feature was introduced.

In the retirement industry, we are finally coming to the conclusion that if people are going to do nothing, we need to change the system so that the outcome of that default is positive. In the old system, it meant many people saved nothing for retirement. Now, automatic enrollment and automatic increase can significantly move the savings needle with much better results.

That’s how plan designs are evolving. We’ve also seen an evolution in terms of who is being helped by automated services. Plan designs are focusing on more than just new employees, picking up tenured employees through re-enrollment events or on an ongoing annual basis. Plan designers who help drive this inevitable change will be looked to as industry leaders who can solve the problem and get better outcomes. 

PA: How do you tell people that “just doing something” isn’t going to be enough?

Ritter: It’s fascinating. Acknowledging that most people won’t take action to save adequately for retirement, we set up a system where they’re automatically enrolled. But then we turn around and somehow decide they will take the step to increase the amount they’re saving, so we don’t implement a system with auto-increase.

There are plans that say, “We’ll do automatic enrollment and then have an auto-increase service that people can sign up for.” If they weren’t signing up for enrollment, they’re not signing up for the increase. The numbers show that. When people designing plans think about savings rates, too often they frame it as, “If I have them save 2% more, that means a 2% drop in their lifestyle. They can’t handle that. Let’s not do it.” First, we shouldn’t be deciding for people that they can’t handle it. With automatic services, if they can’t, they’ll opt out. Second, this is “false framing,” because those designing the plan think of the choice as between a 2% decrease and a 0% decrease, and decide 0% is better.

The reality is, if you take 25-year-olds, automatically enroll them at 3% and they save 3% their entire career, even if you throw in an employer match, when they get to retirement, their standard of living drops by 51%! The choice is not between 2% and 0%. The choice is between 2% and 51%. If you are not increasing what your employees are saving to get them to 15%, and fast, you are having them fall off a cliff when they get to retirement. “At least something” is not that great, and getting people up to saving 15% and using plan designs to do it is what is going to get more people to be more successful.

T. Rowe Price has resources to help advisers and plan sponsors determine how to best implement auto services in their plans. Visit www.troweprice.com/retirementforall to learn more.

Stick to one or two statistics that help prove your point, Stuart Ritter of T. Rowe Price told conference attendees at the PLANADVISER National Conference. Ritter, vice president and certified financial planner (CFP) at T. Rowe Price Investment Services Inc., discussed the three ways in which individuals learn: auditory (by hearing something explained), visual (by seeing it) and kinesthetic (by doing it).

Good presentation habits include a clear, simple presentation and a well-communicated point. While a graph with a great deal of information is helpful when researching, it does not work well on a presentation screen. In cases where you want to show statistics, you should stick to one or two that help prove your point and present them as stand-alone information, rather than one tiny box on a busy graph. “If you ever catch yourself saying ‘I know you can’t read this’ —stop. The only time you should be giving someone something they cannot read is if you are an ophthalmologist giving someone a vision test,” Ritter said.