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Conflicting Views on Americans' Retirement Prospects: Workers Confident, Employers Concerned

Mar 06, 2018

Many Workers Worried About Savings-to-Spending Transition; TDFs Not Yet Fully Tapped as Retirement Income Solution

New York, March 6, 2018 – Strong market performance has helped fuel increasing optimism among American workers about their retirement prospects – but many employers don’t share their upbeat view, according to the latest DC Pulse Survey from BlackRock (NYSE: BLK).  BlackRock surveyed 1,000 participants in defined contribution (DC) retirement plans and more than 200 plan sponsors.

Sixty one percent of DC plan participants surveyed say they are on track to retire with the lifestyle they want.  Nine in 10 say that they are confident in their overall financial situation. However, participants cite transforming accumulated employment savings into ongoing retirement income as a top concern.

For many participants, the performance of their investments is making a considerable difference.  Nearly half of participants (49%) who feel they are on track for retirement point to their investments performing up to their expectations as grounds for their confidence, up 20% from just two years ago.

But many sponsors view things differently. They see a rising number of plan participants who will have to delay retirement due to saving shortfalls, estimating that more than half of their participants (54%) will have to postpone retirement, up from 34% in 2016.

“It remains to be seen if recent volatility has shaken participant confidence, but for the most part DC plan balances have retained the benefits of a multi-year bull market,” said Anne Ackerley, Head of BlackRock’s U.S. and Defined Contribution Group.  “Nevertheless, confidence can be empowering, and now is a perfect time to build on that confidence through action that can help keep participants on track regardless of the market cycle, such as increasing savings or building a retirement income strategy.”

Participants Concerned About Managing Retirement Spending

As confident as they seem to be, participants express some substantive concerns regarding how to effectively address their spending needs in retirement.

Seven in 10 participants agree that their generation won’t have the level of retirement income that retirees formerly had.  Many are concerned specifically about the need to transform accumulated savings into ongoing income:  51% agree that “it’s difficult to know how my retirement savings will translate into monthly income at retirement” and nearly half (48%) say “the thought of having to generate my own retirement income worries me.”  And for nearly half (49%) of participants, their primary retirement goal is simply not to outlive their money.

Historically, most retirees simply haven’t spent down their savings as quickly as anticipated, according to recent research by the BlackRock Retirement Institute with the Employee Benefit Research.  On average, most retirees across all wealth levels have retained about 80 percent of their pre-retirement assets -- or have even grown their assets -- after almost two decades in retirement.

However, BlackRock believes that future retirees many not have the option of leaving principal largely untouched.  “From here on, changing market conditions and the erosion of guaranteed retirement benefits will almost certainly demand that individuals get much more comfortable with spending down their accumulated assets to generate a secure income stream,” said Ms. Ackerley.  “Our survey makes clear that plan participants want their employers to help them manage the saving-to-spending transition – and sponsors agree they need to deliver this help.”

About 90% of participants agree that their plan account should include an estimate of the annual dollar amount or percentage they could safely withdraw in retirement.  About the same number of plan sponsors say that their company feels responsible for helping to support participants’ retirement spending needs.

Reflecting this sense of responsibility, 83% of sponsors have taken some action to encourage participants to keep their assets in the plan post-retirement, with many adding retirement income investment options (35%) or providing guidelines on withdrawal rates (33%).

Yet, while plan sponsors expect about 50% of their participants to stay in the plan for part or all of their retirement, only half offer tools to help participants understand what they could draw down from their savings in retirement (an additional 33% say they are considering doing so in the future).

Target Date Funds Can Offer a Spending Solution

Target date funds (TDFs), long utilized in DC plans to help participants save and invest for retirement, have untapped potential to support retirement spending, the survey suggests.

Sponsors are more likely (39%) to direct participants to TDFs than to any other plan option when it comes to finding support for their retirement spending needs.

But BlackRock’s survey findings indicate that sponsors don’t yet view any of their options as a focused spending solution.  Most sponsors (93%) say their plan currently offers no investment options specifically designed to help retired participants address spending needs – suggesting that more focus may be needed on the sponsor side in re-tooling the TDF specifically as a “decumulation” option.

“Plan sponsors increasingly can deploy TDFs to help individuals spend their retirement savings in ways that make most sense given market conditions, actual spending needs, and anticipated longevity,” said Ms. Ackerley.  “This approach merits a close look by any plan sponsor who wants to provide participants greater comfort that spending will not overwhelm savings over time – and that a lifetime of saving will yield the lifestyle they truly want in retirement.”

Engagement with Saving Process Also Builds Confidence

The good news is that, for many participants, strong markets aren’t the only driver of optimism; active engagement with the retirement savings process also plays a significant role in shaping their view.  Participants who feel they’re currently on track for retirement also attribute their success to such positive behaviors as “I’m saving the amount that allows me to get my employer’s maximum match” (41%) and “I’m saving the maximum amount of money I can at all times” (34%).

“Securing their employer’s matching contribution – in addition to being a key confidence builder – offers employees significant motivation to save,” said Ms. Ackerley.  “Indeed, some sponsors are taking steps to build this motivation, with adjustments to the match that can encourage participants to save even more.”

Over the past two years, 54% of sponsors have made adjustments in plan features such as contribution levels and investment options to support savings; of these, changing the company match for employee plan contributions (17%) is among the top adjustments, along with raising the default contribution rate (20%) and selecting a new default investment alternative (18%).
“Many sponsors have turned their concern about retirement preparedness into action specifically focused on plan features that meaningfully improve participants’ ability to accumulate needed savings over their working lives,” said Ms. Ackerley.  “But participants clearly also need more support in understanding how to best manage their financial lives after employment ends.”

About the DC Pulse Survey

The BlackRock DC Pulse Survey is a major research study of over 200 large defined contribution plan sponsors and 1,000 plan participants in the U.S. executed by Market Strategies International, an independent research company.  The plan sponsors who were interviewed had at least $300 million in assets, with nearly 40% of the respondents serving in benefits or human resources roles, and the rest in finance, investment or business management for their organizations. The plan participants surveyed were employed full-time and participating in their employer’s 401(k) or 403(b) plan, with at least $5,000 in assets in their current account. All respondents were interviewed using an online survey. For the sponsor sample, the survey’s margin of error is +/- 6.5 percentage points; for the participant sample, it is +/- 3.1 percentage points.


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