Participants November 22, 2021

Employees Don’t Want ‘All or Nothing’ When It Comes to Guaranteed Lifetime Income

Eighty-one percent of respondents to a survey indicate they are at least somewhat likely to prefer a retirement plan that substitutes guaranteed income for safe investments such as bonds.

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The majority of employees would welcome retirement income options within employer-sponsored defined contribution (DC) plans, according to a study from the Alliance for Lifetime Income’s Retirement Income Institute.

The study found many employees prefer to have a mix of investments and lifetime income over either traditional pensions or investments alone. Nearly twice as many study respondents prefer a plan that offers a mix (49.5%) to a system that uses only investments (26.5%) or only a pension (24%) to provide income in retirement.  

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The study found pension-only retirement plans are most popular among participants with less formal education, participants with lower retirement savings, Black participants and participants who believe they are less likely to live beyond the age of 75. Investment-only plans are most popular among participants younger than 35, men, those with savings of between $100,000 and $499,999, those who have income between $100,000 and $199,999, and do-it-yourself investors.

Participants who most prefer a mix of investments and pensions are those who are age 55 and older, those with income less than $50,000, women, Hispanic participants (of any race) and respondents with high investment literacy.

Survey respondents were given the ability to select allocations among stocks, safe investments such as bonds and an instrument that provides guaranteed lifetime income, with the total allocation adding up to 100%. Overall, participants placed 35.5% in stocks, 31% in bonds and 33.5% in guaranteed lifetime income.

To better understand why three-quarters of respondents value access to guaranteed lifetime income in retirement (including those who favored a pension or a mix of investments and lifetime income), the researchers asked, “Once you retire, which of the following is the most important attribute of a retirement savings plan?” The answer most frequently selected by respondents (31%) was their ability to understand how much they could safely spend. Slightly less than a quarter of respondents value an opportunity for growth and protection against a drop in value during a market decline. About one in eight believed that low expenses and a large number of choices were the most important attributes of a retirement savings plan.

Substituting Annuities for Bonds

More than four out of five respondents had a positive opinion of retirement plans that substitute annuities for bonds: 21% indicated that they would be highly likely to prefer a retirement plan that substituted guaranteed income for bonds, and 60.3% said that they would be somewhat likely to do so. Only 19% were either not very likely or not at all likely to prefer a retirement plan that substitutes annuities for bonds.

“Since insurance regulation requires investment in bonds to meet expected future income obligations paid to annuitants, it is appropriate to view income annuities as a component of the fixed-income allocation within a retiree’s investment portfolio,” the researchers said in the study report.

Study respondents were also asked about deferred annuities, which allow an employee to buy dollars of fixed future retirement income at a lower price than if they wait until retirement age to buy income. Eighty-five percent indicated that they would be very interested (24%) or somewhat interested (61%) in doing so.

“While prior studies have found evidence of consumer interest in lifetime retirement income, no study has surveyed defined contribution plan participants to carefully gauge demand for a range of possible annuitization options,” says Michael Finke, Alliance fellow and Frank M. Engle Distinguished Chair in Economic Security at The American College of Financial Services. “This research aims to take a deeper look at how participants would design their ideal portfolio, which can help employers better understand their needs.”

The study report, “Participant Attitudes Toward Guaranteed Income in a Defined Contribution Plan,” is available here.

Benefits November 22, 2021

Tailored Benefits Can Help Ease Turnover Concerns

The vast majority of employees say they would feel more invested in staying with their employer if it offered tailored financial benefits that meet their evolving needs.

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Employers are in a bind as they simultaneously deal with issues arising from the “Great Resignation” and challenges in attracting and retaining talent. But as older generations prepare for retirement, recent research suggests employers must realize the solutions they are preparing for the Great Resignation won’t necessarily apply to those who are ready to transition out the workforce.

According to a recent Nationwide Retirement Institute survey of retirement plan sponsors and participants, one in four employer-sponsored retirement plan participants age 45 and older—and 30% of participants 65 and older—report that the COVID-19 pandemic has caused them to push back their retirement or prevented them from ever retiring at all. On average, those who say they must delay retirement expect to work at least three years later than they would have prior to the pandemic.

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Having to delay retirement has had a direct impact on employees’ happiness at work and business outcomes for their employers. Nealy half of plan participants (48%) reported feeling frustrated, 42% are worried, 38% are sad and 17% feel hopeless. These emotions have begun to impact their work, as 48% report their delayed retirement has negatively impacted their mental health, 39% report lower morale and 23% report lower productivity. At the same time, fewer than a quarter of plan sponsors surveyed are even aware that these repercussions are causing issues in their workplace.

“While many companies are focused on attracting and retaining talent during the Great Resignation, there is another group of their employee base that needs attention in order to transition out of the workforce,” says Amelia Dunlap, Nationwide Retirement Solutions marketing vice president. “It is clear delayed retirements can foster negative emotions, which can be detrimental to a company’s culture and bottom line.”

Dunlap says employers should look to invest in the types of short-term and long-term financial planning solutions that help employees reach their financial goals and prepare for the retirement they want—when they want it.

“Doing so may not only help those who are ready to retire, but potentially serve as a reason for younger talent to stay with the company,” Dunlap adds.

According to Morgan Stanley at Work’s “State of the Workplace” study, nearly all human resources (HR) executives are prioritizing re-evaluating workplace financial benefits for 2022. The study shows that employees and employers agree companies could do more, with more than four in five employees and nine in 10 employers believing their companies should be more involved in helping employees understand how to maximize financial benefits amid the pandemic.

In the Morgan Stanley survey, 91% of employees say they would feel more invested in staying with their employer if it offered financial benefits that met their needs, and 90% say their company should prioritize re-evaluating its financial benefits package in 2022. HR executives feel there is room for improvement to stay competitive, with 79% saying that lack of financial benefits will result in attrition and 95% saying their company’s re-evaluation of the financial benefits package for 2022 is a priority.

“The pandemic-fueled uncertainty has led many employers to focus more attention on how to deliver financial benefits that meet their employees’ needs,” says Brian McDonald, head of Morgan Stanley at Work. “Employees are now looking for employers to offer a full spectrum of financial benefits tools and guidance to help them along the right path financially. As a result, those companies that offer a robust benefits package that includes retirement planning, equity compensation, student loan refinancing plans and overall financial wellness benefits will differentiate themselves in the face of unprecedented competition for great talent.”

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