Improved Retirement Confidence Starts with Clarity

New research from the Employee Benefit Research Institute (EBRI) shows Americans are cautiously confident about their retirement prospects.? However, confidence comes from understanding, and many individuals are confused about the different terminology used for income related to retirement planning.? A pair of recent BenefitsPro articles addressed these seemingly disparate yet related topics.

The first article highlighted the results of an EBRI survey, which found that although retirement confidence has increased slightly, only 2 in 10 workers are confident that they’ll have enough money to live comfortably in retirement.? And workers still have plenty of concerns when it comes to their future financial stability:

• 83%: Increasing cost of living will make it harder for you to save as much money as you want
• 79%: The U.S. government making significant changes to the American retirement system
• 78%: Inflation will stay high for at least the next 12 months
• 72%: Housing costs will rise
• 71%: The U.S. economy will go into a recession in the next 12 months

Additionally, there are different aspects of retirement confidence, which include:

• 76%: Enough money to take care of your basic expenses during retirement
• 68%: Doing a good job of preparing financially for retirement
• 66%: Enough money to take care of medical expenses during retirement
• 62%: Enough money to keep up with the cost of living/inflation
• 62%: Enough money to last entire life

Some of the lack of confidence in retirement savings is reflected in poor understanding of complex terminology, such as retirement income, guaranteed income, and lifetime income.? While these terms are often used interchangeably in retirement plan parlance, they have different meanings.? A lack of clarity on what these terms mean can hinder effective use of retirement income options in retirement plans, according to a second BenefitsPro article.

The article offers in-depth explanations of all three terms.? Here is a brief breakdown:

• Retirement income refers to all sources of income someone may receive after retiring.? These might include Social Security, pensions, withdrawals from retirement accounts (such as a 401(k)) and other savings and investments set aside specifically for retirement.
• Guaranteed income is a source of income not subject to market fluctuations or other uncertainties and paid for a retiree’s lifetime, such as annuities.
• Lifetime income is meant to be paid for a retiree’s lifetime, but is not guaranteed.? The idea behind lifetime income solutions is that they provide financial security by helping ensure retirees don’t outlive their savings.

Understanding these terms helps participants make better, more informed decisions when planning for retirement, leading to better outcomes.? Confidence can be improved across the board by implementing effective retirement plan education and communication strategies and offering financial wellness programs to help American workers create greater financial security for today and tomorrow.