Transitioning from Retirement Savings to Retirement Income

We have reached an inflexion point in America.  Boomers are pouring into retirement age at a pace of 10,000 per day.
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While contribution rates improved slightly through the recent financial crisis, all measures of retirement readiness across all age groups still indicate that millions of Americans are not prepared for retirement.  

As financial professionals, this leaves us with an enormous opportunity.  The time is now to take action by helping your clients and their employees shift the conversation from retirement savings to retirement income.  A retirement readiness approach allows you to work with clients to help them determine if their employees are truly on track for retirement.  And, based on the number of boomers flooding into retirement, there has never been a better—or more crucial— time than right now. 

Here are three key practices to help shape your discussion: 

Leverage retirement readiness data and analytics.  When you look at plan metrics such as average participation and average deferral, they are often expressed as aggregate numbers and there is no easy way to translate them into a plan of attack at the individual employee level.  The good news is that relief may be right around the corner.  Service providers are increasingly developing more sophisticated plan level reports and analysis around retirement readiness. 

These reports are designed to help financial professionals shift the focus of the conversation from broad savings levels to a specific amount of income employees may need in retirement. Those same analytics are being used to fuel better reporting at the individual employee level. This in turn helps support the development of more effective plan design features and educational strategies between the financial professional and the plan sponsor.  

Drive plan design, plan design, plan design. In a perfect world, the retirement readiness war begins and ends with plan design. Effectively designed and supported retirement plans with features such as automatic enrollment and escalation tend to have low opt-out rates and therefore can help put a larger percent of employees on the right track to retirement readiness. 

Saving an average of at least 10% of pay plus an employer match or contribution over the course of a career is a good rule of thumb for targeting an effective savings rate. A plan that automatically enrolls participants at a 6% default rate and then automatically escalates deferrals up to 10% over the next few years can help employees get on a healthier savings path.  Contrary to some conventions, there is evidence emerging that higher deferral default rates do not make a significant impact on the opt out rate.

Offer compelling and engaging education.  Help individuals shift their mindset from retirement savings to how much income they will need in retirement.  Use retirement income estimates to determine how much monthly income their current savings rate may generate in retirement. Learning, for example, that a $50,000 balance at age 65 would amount to only about $275 a month for life can be a real wake-up call and a strong motivator to spend less and save more[1].   

In cases where you need to get participants to “opt-in” to the savings process, create immediacy in the education process.  Traditional education processes are often counter-productive.  They feature one-size fits all group meetings, thick written materials, click-here web content and complex resources and tools.  Contemporary resource tools and processes should be quick, visual, intuitive, and engaging.  The education process should be ongoing and compelling – virtually compulsory.  If a blinking yellow light on our car dashboard can get us to go into a gas station and buy wiper fluid, we can surely make our retirement readiness blinking lights more compelling.


We are facing important, but also very exciting times in our business.  The opportunity for retirement financial professionals to not only inform, but advocate for retirement readiness has not been this great in many years – perhaps not since the initial shift to defined contribution.    Retirement plan return on investment needs to be equated to retirement readiness effectiveness, period.  With financial professionals at the helm, we can get millions of Americans to take action toward the path to a safer and more secure retirement.  


Jerry Patterson is senior vice president of Retirement and Investor Services at the Principal Financial Group, an investment management and retirement leader. Jerry is responsible for the Principal retail and institutional annuity businesses, retirement income management strategy and the individual investor business.


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

[1] Principal Financial Group Income Annuity Quote for a 65 year old, unisex pricing, with installment refund, August  19, 2013.