Decoding Retirement: Exploring Key Insights into Preferences for Lifetime Income Options
Pacific Life Institutional Business
We’ll take the burden out of retirement.
Key Takeaways:?
For many employees, preparing for retirement is an intimidating puzzle, especially for those who are unfamiliar with financial terms and products. In addition, while most employees are keenly aware of the need to save for retirement, few have been introduced to the concept of lifetime income, and fewer still know how to achieve financial security in retirement.?
Recently, The Wave Strength explored these issues with a team of experts in a live webinar. Host Jim Breen was joined by Pacific Life’s Dr. Qi Sun and Chris McGlynn, along with Franklin Templeton’s Jacquelyn Reardon, to unpack Dr. Sun’s award-winning study, Decoding Retirement: Key Insights into Participant Preference for Lifetime Income Options, and to discuss how participants feel about their retirement plan options.
Retirement is such a big deal; we have to get it right.?- Jacquelyn Reardon
The Decoding Retirement study examines the dramatically changing landscape of employer-sponsored retirement plans. For baby boomers, pension plans were the foundation of their strategy for retirement income. Now, with the majority of them reaching the full Social Security benefits age and entering retirement, a new chapter of how future retirees receive retirement income is beginning. The study provides compelling insights to help the retirement/financial planning industry better understand the preferences of retirement plan participants, and how to design personalized solutions to improve their retirement outcomes.?
During the live webinar, the panel looked beyond the numbers and discussed what the people behind the data are telling us about financial well-being and retirement.??
Taking a Deeper Dive into Retirement Planning?
There’s a demographic shift in retirement preparedness and attitude, and retirement planning is evolving with this dynamic landscape. Younger employees must navigate a complex financial environment with fewer safety nets than previous generations. It's essential to understand not only how to save but also where to invest and how to anticipate potential financial needs in the future. Older generations benefitted from traditional employer-sponsored retirement plans (such as pensions), whereas younger workers face a different reality. Regardless of age, starting to save early and plan now is critical. Even modest savings can grow significantly over time, thanks to the power of compound interest.?
Do you have a spending plan? Do you have an income plan? We want to raise people’s awareness that it's time to start thinking about this.?-Qi Sun?
The Power of Financial Literacy?
During the webinar, the panel underscored the importance of financial literacy. Many people, particularly women, report low financial literacy levels, which correlates with lower financial well-being. Education and openness to asking questions can bridge this gap. Financial literacy serves as the cornerstone of empowering individuals to make informed decisions about their retirement. Comprehensive education initiatives that cover budgeting, investing, and understanding complex financial products are critical. This education should start early, be continuous, and adapt to changing economic environments and life stages. Providing easily understood, actionable information and accessible resources is imperative for enhancing confidence and competence in retirement planning.??
It’s so important to meet people where they are, at each specific point in their life.?- Chris McGlynn??
A Good Financial Fit?
One size does not fit all when it comes to retirement planning. The webinar emphasized the importance of understanding each individual's unique financial situation, preferences, and goals. The need for tailored financial planning has never been more apparent. By using data analytics and technology, financial planners can offer personalized advice that accounts for an individual’s risk tolerance and circumstances, leading to a more engaged and proactive approach to retirement planning. Tools, advice, and strategies need to be customizable and adapted to fit diverse needs, from managing student loans to saving for a house, all while planning for retirement.?
Employers' Crucial Role?
Employers play a vital role in retirement planning but need to do more to ensure employees are aware of (and understand) the available benefits. Better communication and education could improve this disconnect. Employers are in a unique position to positively influence the retirement readiness of their workforce. They can introduce innovative tools like retirement calculators, one-on-one financial coaching, and workshops that demystify the principles of sound financial planning, thereby fostering a culture of financial wellness. From matching 401(k) contributions to offering resources for managing debt, employers can be pivotal in guiding their workforce toward financial security in retirement.??
For younger generations, 50% of employees said they don't even know what (retirement) benefits exist. Even worse, 72% of those that do know, don’t understand them.”?-Jacquelyn Reardon?
Breaking Down Barriers?
It’s important to acknowledge the psychological barriers that prevent people from planning effectively for retirement. From overconfidence to fear of making the wrong decisions, these mental blocks can be overcome with the right strategies, such as incremental savings plans and personalized advice. Innovative educational strategies and tools that address these barriers can help individuals make better financial decisions. Addressing the psychological hurdles in retirement planning involves creating an environment where long-term thinking is rewarded, and incremental achievements in saving and investing are recognized and celebrated. Programs that offer visual tools and simulations can illustrate the potential growth of savings and the benefits of delaying gratification.?
Virtually every aspect of the modern workplace has witnessed dramatic changes during the past few years, and that includes retirement planning. As plan sponsors, participants, advisors, and the industry navigate the path ahead, it’s important to stay informed. Dr. Sun’s thought-provoking study, along with engaging discussions by industry thought leaders, such as those on The Wave Strength, can help unlock the complexities of retirement planning and improve retirement outcomes for participants.?