Administration February 9, 2017

Couples Should Get In Sync About Retirement Savings

People are more likely to agree with their spouse or partner on daily expenses than on retirement savings, a survey finds.
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More than one-third (37%) of Americans say income for life is what they want most from a workplace retirement plan, according to a recent survey from TIAA.

They prize lifetime income over options such as employer contributions (19%) or investment choices with strong performance (10%).

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However, the survey also found people are more likely to agree with their spouse or partner on daily expenses than on retirement savings. Eighty-two percent agree on how much to spend on children (school gear, activities, etc.); 77% agree on how often to go out to dinner; and 75% agree on how much to spend on vacation, David Ray, senior managing director, head of institutional retirement plan sales at TIAA, in Dallas, tells PLANSPONSOR.

When it comes to retirement, 74% agree on how much to save.

The good news, though, is that 59% who are married or in a relationship say they would be willing to work through their differences to reach a compromise, which can help them develop a solid strategy for retirement.

Ray says the survey reveals a need for more early engagement with couples to speak about finances. According to Ray, plan sponsors can make a big impact here. “Employees have a lot of confidence in employers, so plan sponsors can encourage conversations with spouses and partners, and for employees to start early,” he says. “Plan sponsors can even suggest questions couples can ask, such as what do they want to achieve after working, what income will they need?”

Couples need to set financial priorities, Ray notes, adding that plans with regard to children have a big effect on long-term and short-term goals. A positive draw for employees would be for plan sponsors to offer access to advice or education.

“We found the on-site presence of an adviser or planner to sit with participants and spouses is preferred over a group setting. Couples want privacy to discuss these issues,” Ray says. “If an employer can support that, it creates employee satisfaction and improves retirement readiness for employees. Couples need to put their financial and personal life in order, and that involves emotions.”

Ray adds that accessing retirement readiness information can help plan participants and their spouses feel more confident and develop a plan. “Without that knowledge, they are just guessing,” he says.

The survey was conducted among a random sample of 1,022 adults, ages 18 and older living in the U.S., from January 12 through 16, for TIAA.

Data and Research February 9, 2017

Immediate Annuities Pair With Social Security

A large majority of households that are currently receiving a Social Security benefit already get at least three-quarters of their income in the form of annuities, from Social Security, employer-provided pensions, and other annuity contracts.
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A new analysis by the Employee Benefit Research Institute (EBRI) finds that demand for immediate annuities is highest at the top and bottom of the income spectrum, while remaining fairly anemic in the middle-income groups.

EBRI researchers posit a few potential explanations for the phenomenon. Presumably, those with inadequate assets might value a regular stream of income very highly, the report suggests, while “those with the most” expect to live longer and can more easily afford this type of a product while still meeting other pressing financial goals.

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“A large majority—more than 70%—of households that are currently receiving a Social Security benefit already get at least three-quarters of their income in the form of annuities, from Social Security, employer-provided pensions, and other annuity contracts,” observes Sudipto Banerjee, EBRI research associate and author of the study. “The fact that most retirees are already highly annuitized might help explain the lack of demand for additional annuity income.”

EBRI researchers find demand for information about annuities is broadly increasing, and increased use of the products may be likely to follow, especially given the decline of defined benefit (DB) pension plans.

The analysis shows important ways the level of savings an individual holds strongly affect preferences for immediate annuities, which begin paying out a regular stream of income as soon as they are purchased. As EBRI explains, “Regression results show that effect of savings on annuity preferences follow a U-shaped pattern, meaning that people at the bottom- and top-ends of the savings distribution have a stronger preference for such annuities over people in the middle of the savings distribution. But, savings has a large positive effect on preference for annuities only for those in the highest-savings quintile.”

The study notes that possible explanations for such behavior could be that people at the bottom of the savings distribution are very likely to run out of money in retirement and thus advice they might receive may steer them toward annuities.

“At the same time, people at the top end of the savings distribution expect longer lifespans and can afford annuities even after leaving a financial legacy for their heirs,” Banerjee notes. “People in the middle generally face more uncertainty about their retirement adequacy and so they are more likely to hold on to their savings for precautionary purposes and perhaps also for some hope of leaving a financial legacy for their heirs.”

The EBRI research goes on to suggest there may be increased use of partial annuitization strategies, given that only 16.5% of retirees ages 65 and above preferred full annuitization of their assets, compared with 43% percent who preferred a one-quarter annuitization.

The full report, “How Does Level of Savings Affect Preference for Immediate Annuities?” is published in the latest EBRI Issue Brief, available for download at www.ebri.org. 

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