Capital Ideas^™ 
Investment insights from Capital Group

For years, your plan sponsor clients have told participants: Save more. But what do they say to workers about how much they should spend in retirement? As a retirement plan advisor, you have the opportunity to help plan sponsors have that conversation.

Capital Group’s recent survey of 1,200 retail investors found that respondents want more help making the transition to retirement. They don’t know how much income they will need, and they want guidance on how to translate their savings into a steady “retirement paycheck.”

Participants want a paycheck in retirement, too

Survey results suggest that people want a predictable stream of retirement income:

• Nearly nine out of 10 respondents (87%) say creating a monthly retirement paycheck is appealing. This holds across genders and all age groups.
• A majority (63%) say they prefer their monthly retirement paycheck be a fixed amount, compared to 30% who would prefer flexible withdrawals.
• Three-quarters like the idea of purchasing an annuity providing guaranteed lifetime income, with Gen Xers (78%) and millennials (80%) showing a stronger preference than baby boomers (61%). This suggests participants may be willing to pay for income stability. But at least so far, when participants have the option to purchase an annuity for retirement, few do.

Investors want to feel empowered to create a retirement paycheck

Source: Capital Group, Wisdom of Experience Investor Survey Series, January 2021. Percentages may not add up to 100 due to rounding.

Many participants don’t know how to create a retirement paycheck

Our survey results show participants need help, especially when it comes to retirement spending:

• About 28% haven’t thought about how they plan to spend their money when they retire. This includes nearly a third of Gen Xers (32%) and, surprisingly, nearly a quarter of baby boomers (24%), who are much closer to retirement.
• Fewer than one in five investors (19%) are very confident that they understand the specific steps required to move from saving money for retirement to spending money in retirement.
• Only 19% of respondents are very confident they could set up the right savings withdrawals in retirement.  

Participants are not as confident about how much to take out in retirement

Source: Capital Group, Wisdom of Experience Investor Survey Series, January 2021. Percentages may not add up to 100 due to rounding.

How you can help plan sponsors

Step 1: Beef up their education toolbox

Your plan sponsor clients have spent a great deal of time and effort developing retirement education and communication tools. Yet our survey found people are looking for more — and that current educational efforts may be missing the mark.

We asked investors what types of tools and information they wanted from employers to help navigate their retirement plans. Responses varied:

• 37% of women and 42% of millennials say more personalized advice tops their list.
• More than a third (34%) of Gen Xers want clearer explanations of the plan’s investment options, while 33% want regular updates about plan changes and personalized advice.
• 35% of investors say they utilize their employer plan administrator most for information on how to invest for retirement, but only 46% report receiving any materials or tools from their employer at enrollment or on an ongoing basis.

These survey results suggest “one size fits all” models may not be effective in engaging broader employee populations. So how do you help plan sponsors reach more people?

• Encourage them to change the tenor of the conversation: Plan sponsors can boost participant engagement across the plan by simplifying language and being mindful of demographics when communicating with employees. Regarding a retirement paycheck, suggest they target employees 50 and up with retirement spending and income communications — such as education materials and calculators. Also offer to host pre-retirement workshops, where such topics as Social Security and Medicare are discussed.
• Learn how to connect better: When employees say they are not getting any information, it’s more likely that they are receiving it, but not recognizing it. Help plan sponsors figure out when participants are more available to receive messages. Remind them that office workers linked to a desk are more likely to read email all day, whereas employees who are on the move most of the day — like nurses — may rarely check email. Improving the timing of communications could result in better responses.
  

Step 2: Explore options to provide that retirement paycheck

For many investors today, building a nest egg starts with an employer-sponsored retirement plan. According to the survey, most investors (88%) believe it will be important to invest and grow their nest egg after retirement. That means your clients should anticipate that participants may choose to keep assets in-plan throughout retirement rather than rolling over into an IRA. They may be looking for efficient ways to draw paycheck income while investing for additional portfolio growth. You can help your plan sponsor clients have a significant, long-term impact on the way participants plan for and transition assets for income by helping them:

• Incorporate retirement income in their plans (guaranteed or not): Plan sponsors should explore adopting innovative approaches to retirement income, including target date funds or simple payout strategies designed to generate income through scheduled drawdowns or embedded annuities. These paycheck solutions could be adopted as part of a qualified default investment alternative (QDIA), or participants may have to explicitly opt in.
• Educate participants to plan holistically: Plan assets likely will be just one source of income. Participants need help understanding how to factor in Social Security and any defined benefit into their retirement spending plans. With Social Security, participants need to understand the financial consequences of taking benefits early, taking benefits at full retirement age or delaying benefits.
  

Participant interest in building a retirement paycheck is strong and will likely remain so as more baby boomers retire and more Gen Xers pass their 50th birthday. Our survey suggests that better workplace investor education and in-plan solutions geared specifically for retirement income may help participants feel more confident that they can retire comfortably.