How advisors and employers can help raise retirement confidence
by Jamie OhlMs. Ohl is president of Retirement Plan Services and leads service operations for the life and annuity businesses at Lincoln Financial Group. Additionally, Ohl serves on the company’s Senior Management Committee. Ohl has nearly 30 years of financial services experience spanning a variety of areas in the industry including retirement, operations, distribution and asset management. Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE:LNC) and its affiliates. Visit lfg.com
Retiring – it’s something that all of us hope to be able to do someday – but that not many people feel confident about. Recently, at Lincoln Financial we launched the Consumer Retirement Index, which is a measure of how confident Americans feel about retirement based on their answers to three questions
- How confident are you about being able to accumulate enough money so you can retire when you want to?
- How confident are you about being able to convert your savings into income that will last the rest of your life?
- How confident are you about having enough money to maintain the lifestyle you want in retirement?
This index gives us a more comprehensive picture of how individuals feel about retirement. It takes into account that retiring involves more than just saving in your 401(k) or retirement plan over the course of your career. It’s about saving, and then converting those savings into retirement income. The first quarterly reading of this index showed that only a quarter of working-age Americans are feeling very confident about their retirement.
Balancing competing priorities can help people save enough to achieve the retirement they envision
Saving is, of course, critically important. More than 6 in 10 retirement plan participants understand that they should be saving at least 10 percent of their salary to stay on track, and 43 percent believe they need to save 15 percent or more – which aligns with general industry recommendations.
However, only 42 percent of savers are saving at least as much as they think is necessary1 and employees say saving for retirement is the financial issue that causes them the most stress2. Which makes sense, because it’s hard to save for retirement – a nebulous concept that’s far in the future for so many of us – when there are things like a mortgage, student loans and bills that all need to be addressed today. As an industry, we have to continue to work with advisors and employers to help participants deal with what is keeping them from saving for retirement – competing financial priorities.
The more competing priorities a participant reports, the less money they contribute to their retirement plan. Only 36 percent of individuals with eight or more competing priorities are contributing 10 percent or more to their retirement plan, but of those who have two or fewer priorities fighting for a share of their wallets, 59 percent are contributing at least 10 percent and 40 percent are putting 15 percent or more away for retirement3.
Student loan debt has a major impact on retirement savings, no matter how many other competing financial priorities a participant reported. Six out of ten people with student loan debt said it is keeping them from saving more for their retirement.
Financial wellness programs can help participants ease financial stress
One option for employers is to offer a financial wellness program to their employees, to help them deal with financial stress and learn how to balance their competing priorities. These programs are effective – nine out of 10 of those who participate find financial wellness programs to be useful.
Financial wellness tools can provide immediate help with everyday budgeting, goal setting and prioritization. These are all key to helping savers understand where their money is going, and how they can save more for retirement. And that can have an immediate positive impact, because only 45 percent of people have a monthly budget4.
Advisors are the key to helping savers become more confident about retirement and retirement income
One of the best things anyone can do to become more confident about their retirement and their overall financial situation is to meet with a financial advisor.
A financial advisor can help savers create a holistic financial plan that includes those day-to-day necessities, as well as the key components of retirement – savings and income. Of those investors who are working with an advisor, 89 percent have a financial plan, and 67 percent have an income plan for retirement5.
And it’s important to note, retirement income planning is critically important for advisors to talk through with their clients. Overall, retirement income planning is the number one item addressed in the financial plans of investors who are highly satisfied with their financial advisor6.
It is important to help clients understand that their savings may need to last 30 years or more. For many people, adding a source of protected monthly income can help increase their confidence – both by making their savings last and helping them adjust their spending today. Advisors have the expertise necessary to help savers create a plan that can keep their savings growing while adding solutions like annuities that can offer a protected stream of monthly income for life.
An advisor can also help facilitate the difficult conversation around long-term care and the cost of health care in retirement. But, most people turning 65 will need some kind of long-term care in their lifetime. It’s difficult to think about being in a position to need long-term care, and even harder to talk about. However, it’s a critical component of a holistic retirement plan.
Moving the needle on the Consumer Retirement Index
We have worked hard as an industry to help people understand that saving for retirement is important, and our message is getting through. But that’s only the first step. If we truly want to move the needle on the Consumer Retirement Index it’s going to take all of us – plan providers, employers and financial advisors– to now take that next step and look at how we can help savers understand how their savings will serve them in retirement. ◊
1. 2019 Lincoln Retirement Power® Participant Study
2. Employee Perspectives on Financial Wellness, Lincoln Financial Group, August 2018
3. 2017 Lincoln Retirement Power® Participant Study
4. Employee Perspectives on Financial Wellness, Lincoln Financial Group, August 2018
5. Financial Planning and Advisor Satisfaction Study, Lincoln Financial Group, March 2019
6. Financial Planning and Advisor Satisfaction Study, Lincoln Financial Group, March 2019