Retirement today has been fundamentally redefined. Retirees these days can expect to live longer than past generations while also shouldering more responsibility.
This requires us to expand our approach and think beyond just the accumulation of assets. We must incorporate strategies that create reliable income streams when we are ready to draw down on those savings. Many Americans, however, are uncertain how to address this critical aspect of retirement planning.
There are a number of options today for turning savings into retirement income. For one, employers may offer such an option inside their 401(k) plan. This takes advantage of the automatic features that make workplace saving so easy. Participants have the ability to direct some of their money in such a way that they build critical retirement savings in the early years. Over time, these savings automatically convert into a guaranteed income benefit for life, similar to a defined benefit plan.
According the American Benefits Institute, 12% of employers currently offer an income solution as part of their 401(k) plan. This number is expected to more than double in the next year, a clear indication that plan sponsors recognize the benefits these options can have for helping their workforce prepare for retirement.
One of the greatest hurdles to adequate financial preparation is human inertia. Many people tend to put off for tomorrow what they can do today because there is no immediate need. There are also emotional barriers to giving up control of money stemming from worries that it won't be available in an emergency.
We can help individuals overcome these hurdles by designing in-plan income options that are easy and automatic. From our vantage point, we see three key trends in this area.
Employers will be increasingly involved in advancing retirement readiness for their workforce. They will be expected to play a greater role in ensuring their workforce is retirement ready by policymakers and employees. ING U.S. research found that more than eight in 10 workers would view their employer more favorably if they offered greater comprehensive retirement and financial benefit options, such as an in-plan guaranteed income solution. This suggests it makes good business sense for employers to consider providing these options.
Employees will ask for personalized solutions to address how their savings will translate into income. Public policy continues to drive change for more employee involvement in their retirement security. The recent Department of Labor Lifetime Disclosure Act, which requires retirement plan providers to include income illustrations on existing participant account statements, will no doubt generate questions from employees.
Advisors and consultants specializing in the 401(k) market will be increasingly interested in and driving innovation for solutions that are designed to address retirement income. In many instances, advisors in the small to mid-401(k) space are increasingly familiar with retail income products and can help plan sponsors and participants evaluate the features and benefits of in-plan options.
These are unprecedented times. Those providing, supporting and sponsoring retirement plans at the workplace must respond with new capabilities that address workers' needs. Employers and financial professionals must be more involved in the process of helping individuals reach retirement and successfully live through it.
Actions we take today will affect the ability of future generations to achieve a lifetime of financial well-being.
Richard Mason is president of Corporate Markets for ING U.S. Retirement Solutions.
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