Data and Research December 4, 2023

Plan Sponsors, Participants Want Retirement Income Education

Despite different perceptions of retirement readiness, both plan sponsors and participants understand the importance of grasping the details of how to generate retirement income.  

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Retirement plan sponsors tend to overestimate their participants’ retirement readiness, but employers and their employees are all seeking education regarding how to generate income in retirement, according to Voya Investment Management research.

Voya also found a significant split between plan sponsors’ and plan participants’ perceptions of their levels of retirement readiness: 87% of plan sponsors say their workers feel somewhat or very prepared for retirement, but only 63% of participants agreed.

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“It’s become clear there is a disconnect between employers and their employees surrounding retirement readiness,” said Brian Houston, Voya’s senior vice president and business development manager for DCIO, in a press release. “Specialists and employers can consider these findings an opportunity to bring forward more retirement readiness support solutions, such as offering an expanded investment menu for workers nearing retirement that includes additional fixed-income options, lower volatility equity options and other strategies.”

Plan sponsors cited guidance on selecting retirement income options (53%) as the top service or benefit they look to a retirement plan adviser to provide, while 73% of sponsors identified adding a retirement income feature or product as an important area of focus in the next two years, and 85% said an aging participant base has brought greater focus to the need for retirement income products.

Plan sponsors cited participants’ lack of understanding and support for retirement income solutions as a barrier to increasing their participants’ retirement readiness (46%), placing participant inertia and lack of engagement significantly lower at (28%).

In previous iterations of the survey, “plan sponsors ranked investment selection/monitoring as their most desired service from advisers, [but] this year, that service fell to second place, with guidance on retirement income investing options (a new choice in the survey) ranking as the most desired service,” Voya researchers stated.

In 2023, plan sponsors’ top concerns about their companies’ plans included:

  • Ensuring the plan is consistent with new regulations or compliance requirements (57%);
  • Ensuring that participants are appropriately invested (46%);
  • Reducing plan fees and expenses (42%); and
  • Helping participants transition to retirement or become retirement ready (42%).

Plan participants also reported being interested in retirement income features: 85% said education on retirement income is what they want most from a financial wellness program, and 87% reported being somewhat or very interested in a retirement income solution/investment option which helps provide income during retirement.

Despite participants’ interest in retirement income, workers lack confidence in making retirement income planning decisions, with 30% not at all confident in converting savings into income in retirement; another 29% are not at all confident they understand how much money they will need in order to retire comfortably; and 30% are not at all confident transitioning to retirement.   

Voya Investment Management’s online survey of retirement plan sponsors was conducted from mid-February through early March. Previous iterations of the survey were conducted in March 2021, December 2018 and April 2016. The survey was expanded in 2023 to include contributing participants for the first time.

The survey included feedback from 304 plan sponsors, 205 plan specialists and results of an online survey conducted among 500 benefits-eligible, employed Americans who are actively contributing to their employer-sponsored retirement plan.

Compliance December 1, 2023

How to Encourage Collecting Social Security at 70

A report from the New School outlines some policy options to encourage later collection.

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Americans would get more out of Social Security if they had access to information and programs that made it clear why they should wait until age 70 to claim their benefits, according to a report published by the Schwartz Center for Economic Policy Analysis at the New School in New York.

The report examined different types of “Social Security Bridge” strategies to incentivizes retirees waiting longer to collect benefits; outlined reasons why some seniors start drawing benefits at younger ages; and suggested some policy fixes.

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More than 90% of seniors begin claiming Social Security benefits before the age of 70, despite waiting until age 70 being a better financial decision for most people, “except when someone urgently needs the money and has no alternatives,” the report stated.

The reduction in benefits that happens when claiming benefits earlier than age 70 also extends to survivor benefits, because survivor benefits are tied to the beneficiary’s age when they first claimed. Thus claiming early does not just harm one’s retirement security, but it can also negatively affect the financial wealth of dependents.

As an example, the report described a hypothetical retiree born in 1960. If the person filed for Social Security in 2022 at age 62, they would receive a $1,400 monthly benefit. The same person would receive a $2,000 monthly benefit if they waited until age 67, and a $2,480 benefit if they waited until age 70.

The report made several policy recommendations for programs that would encourage retirees to wait longer before claiming, some of which have already been proposed.

For example, the report recommended improving the communication of Social Security’s age structure, which could be done by outlining the opportunity costs of collecting early, both for individuals and for their survivors. If seniors are not generally aware that waiting to age 70 will usually be a better choice, then a bridge is unlikely to be effective.

A bill proposed in the Senate in March would do precisely this. The bill would require the Social Security Administration to inform workers of their earning history and potential benefits by mail every several years. Drafters of the bill also recommended changing the terminology of Social Security claiming ages. It suggested referring to age 62, currently called the “early eligibility age,” as the “minimum benefit age,” that age 67 be renamed as the “standard retirement age” instead of “full retirement age,” and that age 70 be renamed to “maximum retirement age” from “delayed retirement credits.”

Recognizing that the reason many collect early is simply because they do not have adequate retirement savings to put off collecting for eight more years, the report endorsed passage of the Retirement Savings for Americans Act, which proposes creating a federal automatic individual retirement account that could have a governmental match as high as 5%.

Some states are already considering programs like this, including Maryland, where its retirement savings program for people with no employer-provided retirement plan is researching adding a Social Security bridge element.

For savers that do have plans, the report recommended structuring defined contribution plan payouts such that payments mirror would-be Social Security payments from ages 62 through 69, attempting to mitigate the incentive of early collection so that retirees can get the most value out of Social Security.

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