Data and Research July 18, 2016

Working Later Often a False Hope for the Unprepared

Research warns that current retirees had much less control over their own date of retirement than anticipated, implying plans to work beyond the average retirement age are generally ill-considered.

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The average American expects to spend five to seven additional years in the workplace compared with those who are currently retired, according to HSBC Group research.

Copious amounts of research show this is likely not a realistic goal, but that fact hasn’t dampened Americans’ optimism about bucking the wider trends and working well beyond the traditional retirement age, according to HSBC’s report, “Future of Retirement – Generations and Journeys.”  

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According to the analysis, 44% of American pre-retirees wish they started saving earlier. This is despite the fact that Americans already begin to save for retirement earlier and work more years than their global counterparts, HSBC finds. In fact, many working age Americans who are already saving still don’t think they are saving enough, with 33% of those currently saving saying they should have saved more already by putting aside a larger share of income.

HSBC’s report also uncovers that almost one in seven (14%) working-age people in the U.S. have still not started saving for their retirement, including 3% of those aged 60 or over.  

“American retirees rely less on their children for support (3%) compared to the global average (12%),” HSBC explains. “Instead, over half of retirees in the U.S. are using cash savings to fund retirement (56%), the third highest amount globally.  Other forms of funding include Social Security (51%), stocks (38%), mutual funds (32%) and a spouse or partner’s income (29%).” In another interesting finding, Americans are also “more inclined than retirees in other countries to depend on income earned from selling property, ranking the third highest at 10%.”

In the U.S., women remain less likely than men to have started saving for retirement, with 17% of women having not started saving for retirement at all, compared to 10% of men. On average, men began saving at the age of 29 while women waited until 34, the report shows.

NEXT: Key findings and practical steps 

The HSBC research goes on to show that nearly a quarter (22%) of pre-retirees have never received any formal advice or information about retirement, despite the fact that a strong majority (59%) of those surveyed say “financial security is one of the things I value most in life.”

As such, the research identifies four actions that people can take to help improve their financial well-being in retirement:

  • Consider all retirement expenses – Forty percent of retirees cited credit card repayments as a retirement expenditure, however, only 20% of pre-retirees expect to be repaying credit cards when they retire. When planning for retirement, make sure to list all possible retirement expenditures.
  • Start saving earlier for retirement – Plan to start saving for retirement earlier, to help build a bigger fund and allow it to grow for longer.
  • Seek advice from a professional – Eleven percent of retirees have received financial advice from only friends or family. Seek information from many sources, HSBC says, “but make sure the advice you get is professional.”
  • Expect the unexpected – Thirty-five percent of pre-retirees who are saving for retirement have either halted or struggled to save at some point. “No one can predict the future,” the research concludes, “but preparing for unforeseen events can soften the impact of unforeseen life events if they do occur.”

Additional research findings and information are here.  

Administration July 18, 2016

Plan Sponsors As Retirement Coaches

“Coaching includes offering communication, education and the opportunity for advice to help employees take an active role in retirement planning,” says Cathy McCabe with TIAA.
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A football coach doesn’t just tell players there’s a game and expect them to do all things right and win; the coach helps players improve their skills, plan their moves and review their performance.

In the same way, retirement plan sponsors can act as retirement coaches for employees.

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“When we say retirement coach, we don’t envision plan sponsors sitting down giving one-on-one advice,” says Cathy McCabe, senior managing director for the Institutional Business division at TIAA in New York City. “Coaching includes offering communication, education and the opportunity for advice to help employees take an active role in retirement planning.”

This is something really important to plan sponsors that are really advocates and partners trying to increase plan participation and make sure employees are taking advantage of the education offered to them, she adds.

Plan sponsors should start coaching employees at an early age, helping them understand why it is so important to save for their future, McCabe suggests. They should make sure employees are not missing out on saving early, increasing savings over time and not missing out on the employer match.

She notes that TIAA’s Voices of Experience survey revealed that those who began retirement planning before the age of 30 are more likely to retire before the age of 60, and 75% of those early planners were satisfied with their retirement.

Plan sponsors should offer employees the right set of tools to implement an effective retirement savings plan. “TIAA partners with plan sponsors so that, throughout their career, employees are offered education and have an opportunity for one-on-one advice either by phone or in person,” McCabe says.

NEXT: Coaching for the transition to retirement

As employees start to think about retirement, they need a plan for drawing down their savings. This takes a combination of educational seminars and sending folks to advisers, according to McCabe. Whether using self-serving calculators or tools or sitting down with an adviser to talk about goals and their financial situation, those nearing retirement need to understand what their fixed expenses will be, how to pay for health care, and how to pass assets on to heirs, she adds.

There’s also an emotional component to preparing for retirement, McCabe notes. “Even if employees are ready for retirement financially, they may not be ready to lose their ‘identity,’” she says. She suggests plan sponsors tap into seminars that address the psychological issues of retiring. In addition, a phased retirement, or gradual transition may help. For example, she says, for professors, offering the opportunity to teach one night class may help them transition into full retirement.

Throughout employees’ careers, plan sponsors should balance financial education with offering access to financial professionals. In addition, McCabe says, TIAA has found that allowing employees to include their spouses or partners in educational and advice offerings has a positive impact.

“I think the best results I see for plan sponsors is when they are a partner and advocate and want to help employee learn and take action. Employee response is much better than plan sponsors anticipate,” McCabe concludes.

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