Retiree Challenges, Attitudes and Retirement Income Priorities

In late 2021, the Defined Contribution Institutional Investment Association Retirement Research Center surveyed more than 2,000 retired workers to gauge attitudes about savings, spending and financial wellness in retirement.

While each segment faces its own unique challenges, we found a remarkable consistency of preferences related to retirement income solutions. This implies that such solutions are likely to resonate for the majority of retirees if they are developed with an awareness of retirees’ preferences and priorities.

What Does This Mean for Plan Sponsors?

Plan sponsors may want to consider the diverse preferences and attitudes highlighted here when developing financial wellness programs with the goal of creating more confident and optimistic future retirees.

In a 2021 paper, we reported that plan participants’ top priorities for financial wellness program topics were financial planning, budgeting, managing debt, spending in retirement and taxes—topics which fit nicely with the goal of a more financially secure retirement. In the current environment of market volatility, inflation and many competing priorities for financial resources, these types of supporting features will be increasingly important to maintain a retirement planning focus among employees.

Further, the strong preferences indicated in our study show that for retirement income solutions, goals of steady income, safety and lifetime income could offer guideposts for plan sponsors when offering solutions, such as the availability of a “retirement tier” program.

The DCIIA Retirement Research Center survey analysis was performed on attitudinal statements related to the respondent’s current financial situation, confidence, clarity of a financial plan, spending in retirement and health. Researchers identified four distinct retiree segments, each similar in size (roughly one-fourth of the population). Distinct differences emerged among their financial situations, spending relative to ability, confidence and financial plan clarity.

The four segments are: 

1. Confident retirees, who underspend relative to their ability. They are confident, financially well-situated and have a strong desire to leave an inheritance.  
2. Optimistic/thrifty retirees, who underspend relative to their ability. They have the highest level of reported happiness, are optimistic about their health and longevity and have little interest in leaving an inheritance. 
3. Nervous retirees, who slightly underspend relative to their ability. They are concerned about declining balances and have a reasonably strong desire to leave an inheritance. They also have greater concerns about their current/future health.   
4. Struggling retirees, who overspend relative to their ability. They have low confidence and high levels of financial stress, and they are less likely to have a clear financial plan and more likely to be unmarried.  

Characteristics of Different Retiree Segments

Underspending

relative to ability

CONFIDENT

OPTIMISTIC /

THRIFTY

NERVOUS

Nervous/Unsure

Confident/has a plan

STRUGGLING

Overspending

relative to ability

Underspending relative to ability

CONFIDENT

OPTIMISTIC /

THRIFTY

NERVOUS

Nervous/Unsure

Confident/has a plan

STRUGGLING

Overspending relative to ability

Underspending relative to ability

CONFIDENT

OPTIMISTIC /

THRIFTY

NERVOUS

Nervous/Unsure

Confident/has a plan

STRUGGLING

Overspending relative to ability

Underspending relative to ability

CONFIDENT

OPTIMISTIC /

THRIFTY

NERVOUS

Nervous/Unsure

Confident/has a plan

STRUGGLING

Overspending relative to ability

Source: DCIIA Retirement Research Center

While researchers created four broad segments to describe retiree characteristics, they also identified many differences among the individuals within any given segment. Additional findings include:  

• Retirement age: More than half of respondents (53%) retired earlier than expected, and just 27% retired at the expected age.
• Income sources (income as a percent of salary): Confident and optimistic/thrifty retirees are more likely to have income coming from a pension plan. Conversely, nervous and struggling retirees rely more on Social Security and are less likely to have pension income.
• Distributions: Most retirees surveyed reported they are not spending down unless they are forced to (i.e., struggling retirees). Further, we found that those who are accessing their workplace retirement savings plan (ages 72 and up) only take the required minimum distribution.
• Gender: Women make up 56% of all respondents in our study; however, they are disproportionately represented in the struggling retiree segment, constituting 67% of the group.
• Marital status: Married retirees are more likely to reside in the confident and optimistic/thrifty groups. When evaluated by marital status and gender, nearly two-thirds (63%) of unmarried women (single, divorced or widowed) fall into the struggling or nervous cohorts.

The research also identified differences in what retirees want from retirement income offerings.

Retiree Preferences in Income Solutions

The analysis explored what retirees want from retirement income solutions, and assessed utility, tradeoffs and the importance of various features. The factors include:

• Steady income;
• Safety of one’s money (“I cannot lose it all”);
• Lifetime income (“assurance that my partner and I will receive income as long as we live”);
• Control and access to one’s money;
• Reversibility (“I am not locked into a financial product”); and
• A high investment return.

Three clear tiers of retiree preferences were identified:

• In the top tier, retirees noted the relative importance of steady income, safety and lifetime income;
• The second tier consists of control and access to savings and balances;
• In the third tier, retirees gave significantly less weight to reversibility and high return; however, these results do not indicate that reversibility and high return are entirely unimportant to retirees, just that they are relatively less important.

Warren Cormier is executive director of the Defined Contribution Institutional Investment Association Retirement Research Center. Pam Hess, Chartered Financial Analyst, is vice president of research and member engagement at DCIIA RRC.

This feature is to provide general information only, does not constitute legal or tax advice and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services Inc. (ISS) or its affiliates.