A disconnect between retirement offerings and worker savings — and 5 ways we can act, now

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When thinking about retirement, most of us look to the future. Not just in terms of when we want to retire, but where we want to go and how we want to spend our time. In 2020, we saw just how rapidly even the best laid plans can change.

As we navigate what appears to be a more stable environment in 2021, we’re looking closely at how financial professionals, plan sponsors, and workers feel about the future so we can help as many people as possible be ready for retirement. In our most recent survey, we found a telling discrepancy: while plan sponsors feel confident in their retirement offerings, they have very low expectations that their workers are saving enough for retirement. 

For us, this is a crucial issue because it shows that while plan sponsors feel they have their retirement offerings in place, they are concerned that workers aren’t using them. The good news is, there are ways we can all work together to help bridge this gap.

The retirement conundrum

Many plan sponsors have a well-deserved sense of pride in their retirement offering, but we were surprised by their rather low expectation of its effectiveness once in participants’ hands. 

Facts from the Q1 Principal Retirement Security Survey, February 2021, Plan Sponsor Results or Consumer Results.

And on top of that, workers feel very differently—a considerable 46% feel they’ll have enough saved to live comfortably once retired. 

Why is that? Perhaps one reason is that a plan sponsor may not know the full financial picture of their workers. Plus, they might not factor in the power of personal resilience. And that’s powerful; the first thing most of us do when facing a financial challenge is look hard at our discretionary expenses and adjust our budgets. In layman’s terms, we get scrappy. 

But the outlook from workers is much rosier. To some extent, they may not be aware of the risks we try to solve for retirement savings: longevity, health care costs, inflation, market volatility, and the risk of a market loss near retirement. So, there might be an element of “not knowing what they don’t know”. But when financial challenges arise, people will likely apply personal resilience. There’s a comfort limit on that and “scrappy” isn’t a long-term solution. 

Sometimes unplanned things happen. The trick is how to help people be prepared for them while still having enough to live day to day.

So, what can we do?

That’s the question. It’s a problem that requires all of us to work together. And that “we” includes financial professionals, plan sponsors, and workers , and yes, investment providers and recordkeepers, too. Driven by our research, here are five ways we suggest getting started:

  1. Start by listening to workers. They told us what they want to boost their savings. 70% want guaranteed lifetime income, in-plan, followed by 59% asking for managed accounts, and 44% asked for ESG (environmental/social/governance) investment options. 
  2. Break it down by generation. Tailoring services, resources, and tools by age can help. Of plan sponsors, 55% report managing the needs of four generations in their workplace. But only 20% consider worker demographics in benefit decisions. There can be a lot of opportunity there.
  3. Expand planning offerings. There’s room to grow here too. Only 32% of plan sponsors give access to a financial professional through the workplace plan, 29% offer retirement transition services, and 20% offer retirement income planning resources. Workers want this help—65% either work with a financial professional or intend to.
  4. Focus where workers need it most. Plan sponsors say they need more education on Social Security withdrawal options, determining when to retire, how to estimate retirement healthcare costs, and how to create income from retirement savings. Education material from your plan provider or financial professional can help.
  5. Offer financial wellness topics that matter. Workers say they need help with reducing financial stress, budgeting today, emergency savings, and paying down debt. Our experience shows us that they prefer varied communication methods—free of jargon—and want it where they are (likely digital). 

This list, while short, is not an easy lift. It will take all of us working together. People deserve to live comfortably in retirement and have confidence for their future. 

Renee Schaaf is President, Retirement and Income Solutions at Principal.

This is intended to be educational in nature and is not intended to be taken as a recommendation. Insurance products and plan administrative services provided through Principal Life Insurance Co., a member of the Principal Financial Group®, Des Moines, Iowa 50392.  1671818-062021

This article is printed at the BenefitsPRO site with permission from Principal.