"For so many people, understanding how long they can potentially live during retirement is among the biggest barriers to attaining retirement security," said Kourtney Gibson, CEO of Retirement Solutions, TIAA. "Workers need to think about how to maximize savings during working years, especially younger generations who can greatly benefit from the power of compounding interest and how an annuity can secure a potentially long life." 
We discussed with Gibson what specific ways employers can better prepare employees for their retirement years.

Q: Since retirement preparedness is urgent, can employers stress the importance of longevity literacy to employees in specific ways?

Kourtney Gibson: Employers can help address the issue by providing access to financial literacy programs, services and advice to improve financial and longevity literacy rates and overall financial security

Americans are approaching retirement planning with a limited understanding of how long they can likely live, and that lack of understanding poses a serious threat to retirement security. A recent study by TIAA Institute and Global Financial Literacy Excellence Center or GFLEC found that one-half of workers who expect to live fewer than 10 years in retirement are saving on a regular basis, compared with over 70% of those who anticipate a retirement of at least 20 years.
The study also found that individuals who expect shorter lifespans and shorter retirements because they underestimate general population life expectancy, are at risk of not saving enough because their planning horizon is too short.

We are facing a real crisis when it comes to retirement security, and a lack of financial education is just one part of the problem. Financial literacy rates among U.S. adults remains low. Since the P-Fin Index survey launched nine years ago, each year U.S. adults have answered only about one half of the survey questions correctly. Financial Literacy education can help improve an understanding of a broad range of personal finance topics from retirement planning to budgeting, saving and compound interest. Investment firm Morningstar estimates 45 percent of American households are at risk of running short of money in retirement. This should make improving financial literacy and retirement readiness a top concern for everyone.

Q: How can employees maximize savings strategies during working years to prepare for longer life spans?

KG: First, it’s critically important that younger generations in particular understand the importance of saving for retirement and saving as soon as they can, so they benefit from the power of compounding interest.   

The easiest way to boost savings for retirement is by taking full advantage of your workplace retirement savings plan—and then, contribute as much as you can, or at least up to your company match. Depending on what your company offers, the match can range from 3% to 5% or more. The match is free money. Don’t leave it on the table! That is additional money on top of your contributions.

If you don’t have access to a retirement savings plan at work consider making contributions on your own through a tax-advantaged retirement account like an IRA.
And because we don’t know how long we’ll live, employees may also want to consider adding a source of guaranteed lifetime income to their retirement savings strategy. Adding a source of lifetime income, like a low cost in-plan fixed annuity can offer a source of retirement income that cannot be outlived.

And finally, using advice services can help you meet your savings goals. Whether you take advantage of financial advice offered by your employer or work with an advice team through a trusted and reputable outside firm, getting advice from a licensed professional as part of your retirement planning can improve retirement outcomes and readiness.

Q: Should more employers offer access to lifetime income solutions to their employees? 

KG: Absolutely. Adding a source of lifetime income, such as an in-plan fixed annuity, can help offset the four main risks to retirement security: Longevity, cognitive risk, market risk and inflation. When you’re ready to retire you can then convert your annuity into a monthly check in retirement that lasts all through your golden years.

Related: State legislator group calls for more access to lifetime income options inside 401(k) plans

More and more employers and plan sponsors are recognizing the importance of adding a source of guaranteed income to investment plan menus. Our own survey of DC Plan Sponsors found that three in four expect the demand for annuities to grow over the next five years and 40% plan to add annuities within the next two years.

As pensions continue to fade away and with Social Security only expected to cover about 40% of the average worker’s preretirement earnings, employers should consider adding lifetime income options to retirement plans for their employees.