Although plan sponsors and participants share a commitment to retirement planning, significant gaps exist in their perceptions of participant preparedness, risk tolerance and how common retirement products work, a survey from American Century Investments found.
Although 56% of plan sponsors believe employees are prepared to manage finances without a paycheck in retirement, only 42% of participants feel the same. Fewer than half of participants feel prepared to navigate key decisions in the transition to retirement, and just 30% say they could retire earlier than expected if necessary because of health or caregiving needs.
“The transition to retirement creates concerns like how to turn savings into income and how to protect against market losses,” said Glenn Dial, senior retirement strategist for American Century Investments.
Although only 19% of participants describe themselves as “very accepting” of market risk, down from 24% last year, sponsors tend to overestimate participant comfort with investment loss. Almost half of participants near retirement age are comfortable with losing only 10% or less of their account balance, while plan sponsors believe three-quarters of participants can tolerate a loss of more than 10%.
Nearly 7 in 10 participants prefer moderate target date funds, but 38% of sponsors favor aggressive options for high savers. Moreover, 62% of participants mistakenly believe target date funds provide income, and one-third believe they guarantee against losses.
The survey also reveals gaps between what participants and plan sponsors identify as important and what sponsors offer. Ninety-three percent of participants express an interest in guaranteed income, and 1 in 3 sponsors are actively considering it. Three in five participants would invest 30% or more of their balance in an in-plan income solution, but sponsors remain divided on implementation and education.
Eight in 10 participants say they need help turning savings into a reliable income stream, and 86% of sponsors agree that participants need this support. However, only 44% of sponsors offer resources for managing finances in retirement, and just 40% provide guidance on generating income from savings. The finding point to a need for professional advice.
Dial offers this advice for helping bridge the gap between sponsors and participants:
- Plain sponsors. Take a closer look at participant risk preferences and provide tailored education on target date funds and guaranteed income options. Emphasize early and consistent saving, and offer resources that help employees turn savings into income.
- Participants. Participants should seek out educational tools from employers and plan sponsors to better understand investment options and retirement income strategies. Get granular with retirement goals, and learn more about the products that support these outcomes. Ask advisors for support in navigating the transition to retirement.
“Advisors are in the unique position to hear how much participants worry about achieving a successful retirement, whether that is having enough money or maintaining an income,” he said. “They also need an advisor who can listen and understand their concerns, then respond with the best plan.”
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.