Administration January 23, 2018

Sibson Suggests How to Measure Employee Retirement Readiness

Sibson suggests that employers consider one or more of the following three metrics: replacement ratio, wealth accumulation target and retirement readiness grade.

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One of the most important things a company can do to ensure its well-being is to assess the retirement readiness of each of its employees, not just those approaching retirement, according to Sibson Consulting.

“Quantifying retirement readiness involves understanding what savings employees will need to attain a secure retirement, gathering relevant financial and other data on all employees and then running the numbers to determine how each employee stacks up,” says Doron Scharf, senior vice president with Sibson.

Sibson suggests that employers consider one or more of the following three metrics: replacement ratio, wealth accumulation target and retirement readiness grade. The replacement ratio is the required income for retirement as a percentage of income just before retirement. Citing a 2016 Government Accountability Office study, Sibson says the replacement ratio should be between 70% and 85% and will include Social Security. Sibson notes that while 65 is the typical retirement age, some employees will retire earlier, and they will need additional savings to cover a longer retirement.

The wealth accumulation target is the total savings an employee will need to last throughout their retirement. Sibson says one study has shown that if a person were to retire at age 65 and wants to replace 85% of their income, they would need 11 times their final pay. At age 67, they would need only eight times final pay.

The retirement readiness grade is a letter grade given to each employee to show their progress.

“Once these metrics are set up, employers should then develop and implement strategies to help employees stay on track,” adds Jonathan Price, vice president at Sibson. “Strategies could include plan design changes, educational materials or communications campaigns to encourage behavioral changes.”

As Sibson says in its report, “Many organizations have no idea how financially prepared their employees are for retirement. They may have a number of later-career employees who are nowhere near ready and, consequently, have to work for many more years. On the other hand, there may be a few mid-career employees who already have enough savings to retire and could decide to do so on short notice. Employees who find they must work longer than they expected or who retire unexpectedly early may disrupt the natural progression of the workforce.”

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Sibson’s “Quantifying Retirement Readiness” report can be downloaded here.
Products January 23, 2018

New Firm Links Health to Retirement Savings

The firm’s first white paper shows how effectively managing health conditions can save money for employees, and if that savings is invested in retirement plans, generate more income in retirement.

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HealthView Services, a provider of health care cost data to financial service firms, and Mercy, a health system, launched a joint venture, HealthyCapital, which provides data and applications that calculate expected health care costs for individuals based on health condition, age, gender and where they live.

HealthyCapital’s first white paper, “Building Wealth Through Wellness: Incentivizing Healthy Behaviors to Reduce Healthcare Costs and Increase Retirement Savings,” illustrates how the effective management of chronic conditions can increase longevity and savings, reduce health care costs for individuals and employers, and, if the savings are invested in 401(k) plans, generate substantial income in retirement.

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“Half of all adults in the U.S. have a chronic condition, and around 50% stop taking prescribed medications within six months of their diagnosis,” says Dr. Raymond Weick, chief medical officer, HealthyCapital, and vice president, physician growth and business development at Mercy. “Until now we haven’t had access to actuarial data that shows individual patients the financial benefits of health condition management and lifestyle changes. HealthyCapital addresses this need.”

The paper shows that an average 45-year-old male with high blood pressure who adheres to his physician’s treatment plan and adopts simple healthier lifestyle behaviors will gain three years in life expectancy (84 to 87) and pay $65,000 less in pre-retirement, out-of-pocket health care costs than an average individual who only partially follows treatment protocols. An individual who chooses to invest these pre-retirement savings at a 6% return would have an additional $100,348 at retirement—adding 57% to the current average 64-year-old’s 401(k) retirement savings.

The paper also highlights the value of healthier employees for employers. Assuming the national average rate of diabetes of 9.3%, a company with 5,000 employees could reduce its annual health care expenditures by more than $927,000, for this disease alone, through the implementation of an effective condition management program.

Underscoring the benefits of clear financial incentives and condition management support, HealthyCapital will provide support services to help individuals follow treatment protocols and adopt healthier behaviors. The company’s platform offers users the option to sign up for health coaching through a text messaging service, which sends tailored messages based on individual health care goals.

“As individuals realize the financial benefits of healthier behaviors, and how investing these savings can increase retirement income, we see significant opportunities for financial institutions to simultaneously help their clients save for the future while growing assets under management,” says Ron Mastrogiovanni, CEO of HealthyCapital and president and CEO of HealthView Services.

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