Retirement income has become a hot topic across the industry and more than half of plan sponsors say providing retirement income support is a key purpose of their plan.* To better understand the type of support plan participants want from their employers, we went straight to the source and asked participants to tell us.
Retirement income demand is on the rise
1. Participants want and need retirement income support
- Only three in 10 survey participants are confident that they know how to use their savings to generate income in retirement.
- Nearly eight in 10 participants are concerned about creating a steady stream of income in retirement that will last the rest of their life.
While effective plan-design features exist to help set up participants for success while they save in the plan, retirement income is a space that, thus far, is largely unsupported by employers. Employees with higher asset levels can typically get access to advisors who can help to support the spending journey, but not all participants will fall into this category.
2. Participants expect retirement income support from their employers
- Six in 10 participants agree their employer has a responsibility to help them understand how they can use their retirement savings to generate income after they stop working.
- Younger participants, those < 30 years of age, are even more likely to have this sentiment, with seven out of 10 agreeing. But the desire for help in this area spans all age groups.
- Eight in 10 of those polled say they would be likely to leave their savings in their 401(k) plan if they had an option to use their savings to help generate monthly income in retirement.
It is clear that participants want support—and they expect it from their employers.
3. Participants favor guaranteed income–and there's an unexpected motivator to include it
- Ninety percent say they are interested in their plan’s investment menu including an option that guarantees income in retirement.
- This aligns with our recent research, which found that people feel more comfortable spending at higher levels in retirement when a larger portion of their income is guaranteed.
- Six in 10 admitted to not saving as much as they think they should be saving to be on track for retirement.
When we asked participants to pinpoint the best way for employers to motivate them to save more for retirement: Automatic escalation was named a top motivator by 35% of participants.
Here's where the surprise comes in: A similar number (35%) of participants said the best motivator would be to have a guaranteed lifetime income option in their plan.
It seems the benefits of offering a guaranteed lifetime income product extend even beyond income generation.
Participant desire for retirement income support is clear.
Plan sponsors have an opportunity to help participants make this critical transition from saving to spending—and they are uniquely positioned to do so, as employees generally trust their employers and the guidance they provide.
One additional benefit for sponsors—improved workforce management. Studies have shown that employees who are more confident about their finances and have less financial stress are more productive at work.** When people feel more confident knowing they will have a steady income after they stop working they are also more likely to retire at their desired retirement age.
Next steps
Adding retirement income solutions to a plan typically does not happen overnight. But you can begin this important process by taking these five steps:
- Consider plan demographics—Determine which product type best aligns with your employee behaviors, wants and needs.
- Gather information—Research available products and their various features, benefits and tradeoffs.
- Select a solution—Follow a well-documented process to select the particular retirement income solution.
- Amend plan documents—Make any changes needed to accommodate the selected retirement income solution.
- Communicate—Develop a robust communications program to help employees make informed decisions.