Plan Sponsors Increasingly Add Focus on Post-Retirement Strategy

A new education push is underway among plan sponsors, who are looking to help employees create income in retirement when their last day of work precedes eligibility for Medicare and Social Security benefits.

“There’s several pieces to the retirement puzzle,” says Wei Hu, vice president of financial research at Santa Clara, California-based Edelman Financial Engines, of weighing Medicare, Social Security, 401(k)s, IRAs, pensions and other savings. “They all don’t have to happen at the same time, so what people need is a holistic-minded adviser who can help them put all those pieces together instead of waiting until some age when everything is available all at once.”

For many employees on the cusp of retirement, piecing together these varied retirement assets can seem a daunting task as they shift from saving and accumulating investments to creating a steady income stream without running out of money. Some of these questions begin well before age 62, when people are eligible to collect Social Security.

‘Don’t Get Overwhelmed’

Starting conversations about these topics early is key to overcoming inertia and to demystifying the process, according to Emma O’Brien, a senior consultant with NEPC who is based in the Boston area. A consultant to plan sponsors, she sees greater success in easing stress among employees when plan sponsors engage their participants long before they have a retirement date in mind. Varied direct messaging is essential too, as she recommends multiple attempts to reach employees, whether by email or by mail.

“It starts with making sure that the plan is simple and clear to participants so that when they do engage, they don’t get overwhelmed,” O’Brien says.

Finding ways to encourage employees to boost savings is a necessary complement to getting employees involved with their retirement plans, she says.

“The more participants contribute as active employees, the more options they have for spending down their benefits in retirement, both in terms of the dollar amounts they can draw, as well as the different distribution strategies,” O’Brien says.

Someone to Guide You

She also sees benefits in providing modeling, such as when recordkeepers provide tools within their websites to help participants forecast their potential savings at retirement. Some include the ability to incorporate Social Security benefits as well, O’Brien says. Gaming out different options can quickly show pros and cons.

Hu also stresses the importance of helping employees analyze their different income options ahead of retirement. Edelman Financial Engines works with plan sponsors, including Boeing, Lenovo and Equifax. For some, including Boeing, analysis is provided through a service called Income Beyond Retirement, which runs the numbers on everything from the ideal age to maximize Social Security benefits to which assets can be tapped without endangering the health of a portfolio. This advice has already resulted in a gain in expected lifetime Social Security benefits of an average of $100,000 per household due to employees waiting until a later age to collect Social Security, according to Hu. Boeing was an early adopter of this approach, starting in 2022.

“I find that many near-retirees are also unsure about when to begin taking Social Security and how to make investment choices in retirement,” said Dimitra Hannon, senior director of financial benefits and well-being at the Boeing Co., in a Q&A with Edelman. “There are a lot of different retirement-income scenarios, so figuring out which avenues will be most financially beneficial for you in the long run can be complex.”

‘Not Every Year … Needs to Look the Same’

In addition to providing the numerical analysis and a range of options, however, Hu sees offering one-on-one advisers as a necessary way to support employees. Planning for retirement is individual and personal, as well as potentially stressful. Having someone to guide you through your own situation can both alleviate worry and create a more complete picture, he says.

This analysis considers all sources of income, marital status, a family’s retirement timeline, spousal Social Security benefits and the impact of taxes.

“Not every year in retirement needs to look the same as every other year,” Hu says. As an example, someone wanting to retire at age 65 but waiting to collect Social Security income at age 70 needs to know with confidence they can initially take higher withdrawals from their 401(k) without endangering their overall retirement. “This long-term, holistic forecasting capability gives people a sense of what their retirement income is likely to look like, not just in the near term, but also decades into retirement, after Social Security has kicked in.”

O’Brien too, sees how employees are aided by testing various scenarios. “They can model out what their future Social Security benefit is, and that’s the way to get a much more personalized approach,” she says.

She also encourages plan sponsors to reframe how they discuss Social Security with plan participants.

“We’re changing the way we think about Social Security, which is essentially an annuity,” O’Brien says. “Providing participants with information and tools to understand what their income replacement can be in retirement through their DC savings and Social Security benefits is really useful education.”

In advising plan sponsors, O’Brien and her colleagues also assess the underlying demographics of the plan when choosing different investment options so that the risk profile appropriately matches the participants’ profiles. For instance, with more than 60% of retirement plan participants selecting target-date mutual funds, O’Brien will help select a target-date fund with an underlying investment mix designed to provide a more conservative income stream if, for example, the employee population is older at one firm than another.

Hu expects these kinds of conversations with plan sponsors and participants to become increasingly personalized.

“Retirement advice for many decades has been focused on getting people to retirement,” Hu says. “Only in the last maybe 10 years have more services like ours become available to people in the accumulation phase. … When you start thinking seriously about what a retiree needs to make decisions about, then you realize that it is about much more than just managing the investment portfolio.”