‘Show me the income’: Employees seek guidance for their long-term retirement income
A disconnect exists between employers and employees when it comes to retirement education efforts: 78% of employers say they provide the education, but just 38% of employees report receiving it, says a new survey.
Employees are increasingly relying on defined contribution plans for their long-term retirement income, but they lack confidence in their strategy and seek more guidance from their employers, according to a new survey from Invesco.
The global investment management firm’s annual defined contribution research study, “Show Me the Income,” indicated that 70% of retirement savers surveyed fear running out of money in retirement, and just 22% believe that they are capable of independently developing a retirement income strategy.
“Employees often feel the task of funding retirement is primarily on them, and with different ideas of what retirement looks like, there’s not a ‘one-size-fits-all’ approach to saving for retirement,” says Greg Jenkins, managing director and head of institutional defined contribution at Invesco, in a press release. “This new research allows us to understand where employee knowledge stands regarding retirement income planning and the concerns they have, so that employers can better support the transition from retirement savings to retirement income in their plans.”
The study was conducted over the course of 10 months and involved online surveys of 100 plan sponsors, more than 1,000 plan participants, 12 participant focus groups, eight in-depth interviews with plan consultants and advisors, and nine in-depth interviews with large plan sponsors.
Plan participants understand the importance of a defined contribution plan to a comfortable retirement as 83% indicated that they expect their 401(k) savings will prove to serve as their largest source of retirement income, exceeding both Social Security and personal investments.
Related: 80% of employees are unprepared for retirement: Employers should do more
According to the survey, 80% of employees were in favor of automatic enrollment into a retirement income solution, including 93% of those who already had been automatically enrolled into their plan, 83% of millennials and 83% of those with income under $100,000.
A disconnect between employers and employees shows that employer retirement education efforts need improvement. According to the survey, 78% of employers said they provided communications and/or education about turning retirement savings into a regular stream of income, but just 38% of employees reported receiving that type of communications. As a result, employees remain in the dark about various aspects of their plans. For instance, 29% of baby boomers and 28% of Gen X employees reported being unsure if staying in their defined contribution plan when they retire was allowed.
“With research showing that almost 70% of employee respondents are worried about running out of money in retirement, it’s vital that employers help them overcome that fear, bridge the gap with retirement income options and education,” Jenkins said. “Nearly 9 in 10 employees would be more likely to stay in their plan if it were able to generate a regular income stream in retirement – yet almost one third of participants were unaware that staying in the plan after retirement was even possible – highlighting the need for improved communication.”
When comparing employer retirement plans, 89% of employees said they were more likely to stay in their current employer’s plan if it included investments to help them create a stream of income in retirement. Other appealing characteristics were lower costs than other retirement plans (87%) and the capability of rolling other retirement money into the plan for a consolidated view of their savings (84%). The most unappealing characteristics were not being able to make any changes (92%), an inability to access large amounts if needed (90%) and no control over how the money is invested (79%).
“Quite simply, we found that employees want their employers to start the retirement income conversation – specifically on how to turn their DC plan savings into an income stream in retirement,” Jenkins said. “To ensure employees are not only prepared for retirement, but provided with income throughout, it is crucial that employers look at a range of tools and income solutions and consider early, more frequent educational support to help employees have a smooth transition.”