Running the numbers on retirement readiness

RETIREMENT INSIGHTS

Using data-driven insights to make the case for better participant outcomes

Over the last decade, the retirement industry has witnessed the significant impact of strategic plan design on participant outcomes. A growing body of research shows the benefits of features like auto-escalation, auto-enrollment and more, but how do plan sponsors decide which levers to pull and how hard to pull them? To answer that question, BlackRock built Future in Focus®, a tool that quantifies the trade-offs between different plan design variables and can help you deliver optimal results for participants.

Below are three of the most common ways your peers have been using Future in Focus to support plan design decisions. Try these for yourself—or use the recently enhanced tool to explore the impact of other potential changes.

Stretching the match

The employer match is one of a plan sponsor’s most powerful resources to encourage positive savings behaviors. But how do you best use it to reward saving while also managing cost? Stretching the match is one answer. Say you're currently matching 100% of contributions up to a rate of 3%. Shifting to a 50% match up to a rate of 6% is likely to boost your employees’ savings rates at no additional employer cost.

Take a closer look at how stretching the match can improve participant outcomes in this video, or experiment with various match scenarios using Future in Focus.

Hello, this is Tyler Neenan, Defined Contribution Consultant at BlackRock. What I'm here today to talk about is how to utilize BlackRock's Future in Focus platform to quantify the impact of stretching the match on the average participant. While I'm not going to make any changes under our assumptions for this average participant, what I am going to do is highlight how stretching the match from 100 cents on the dollar up to 3%, to $0.50 on the dollar up to 6% will impact the retirement readiness to this average participant.

To fully take advantage of this match, we're also going to change the default contribution rate from 3% to 6%. We're not going to make any changes around the current investment strategy or fees for this average participant, but what we will do is project out the outcome, which includes the projected account balance, retirement readiness, and employer contributions. So what you'll find is that we will see an increase in the account balance from just over $700,000 to just shy of $1.1 million. You'll also see there's no additional employer contributions, but the retirement readiness will actually increase from 48% to 56%. For more information on how to use Future in Focus to support client conversations, please contact your BlackRock representative.

Hello, this is Tyler Neenan, Defined Contribution Consultant at BlackRock. What I'm here today to talk about is how to utilize BlackRock's Future in Focus platform to quantify the impact of stretching the match on the average participant. While I'm not going to make any changes under our assumptions for this average participant, what I am going to do is highlight how stretching the match from 100 cents on the dollar up to 3%, to $0.50 on the dollar up to 6% will impact the retirement readiness to this average participant.

To fully take advantage of this match, we're also going to change the default contribution rate from 3% to 6%. We're not going to make any changes around the current investment strategy or fees for this average participant, but what we will do is project out the outcome, which includes the projected account balance, retirement readiness, and employer contributions. So what you'll find is that we will see an increase in the account balance from just over $700,000 to just shy of $1.1 million. You'll also see there's no additional employer contributions, but the retirement readiness will actually increase from 48% to 56%. For more information on how to use Future in Focus to support client conversations, please contact your BlackRock representative.

Expanding the autos

Sometimes the biggest hurdle to helping employees save is getting them to sign up for the plan in the first place—or, once they're signed up, encouraging them to increase their contributions. That's where automatic features come in. Auto-enrollment gets employees saving from the moment they become eligible for a plan, putting their money to work right away without requiring them to jump through any hoops. Auto-escalation further nudges participants, helping them go from saving to saving enough.

The benefits of autos can be remarkable—and they can be quantified. This video below calculates the long-term effect of starting contributions 10 years earlier, and automatically increasing participant’s contributions by 1% each year up to 10%. Future in Focus lets you shift the variables and compare different outcomes.

Hi, this is Sharad Vasanth, Defined Contribution Consultant with BlackRock. The retirement industry knows the powerful impact of how automatic features can increase outcomes for plan participants. But trying to quantify this becomes extremely difficult. This is why BlackRock developed Future in Focus, a tool that really helps show how plan sponsors can implement changes like automatic enrollment and automatic escalation to help participants reach retirement readiness goals.

Now, to illustrate the potential impact of these two features, we will showcase a 35-year-old hypothetical participant making $70,000 a year, and how they can be impacted if they were automatically enrolled in their plan at the age of 25 and if the planning had auto-escalation features that would increase an employee's contribution rate from 1% and capping them out at 10%.

Now, by making these two changes, what you are able to show is that automatic enrollment adds $254,000 to an account balance, while automatic escalation adds approximately a $1 million to an account balance. This results in about a 60% change for automatic enrollment and 161% change increase for automatic escalation.

You can also click the top right button to export this to a PDF document and print this out for plan sponsors. For more information on how to use Future in Focus to support important client conversations please contact your BlackRock representative.

Hi, this is Sharad Vasanth, Defined Contribution Consultant with BlackRock. The retirement industry knows the powerful impact of how automatic features can increase outcomes for plan participants. But trying to quantify this becomes extremely difficult. This is why BlackRock developed Future in Focus, a tool that really helps show how plan sponsors can implement changes like automatic enrollment and automatic escalation to help participants reach retirement readiness goals.

Now, to illustrate the potential impact of these two features, we will showcase a 35-year-old hypothetical participant making $70,000 a year, and how they can be impacted if they were automatically enrolled in their plan at the age of 25 and if the planning had auto-escalation features that would increase an employee's contribution rate from 1% and capping them out at 10%.

Now, by making these two changes, what you are able to show is that automatic enrollment adds $254,000 to an account balance, while automatic escalation adds approximately a $1 million to an account balance. This results in about a 60% change for automatic enrollment and 161% change increase for automatic escalation.

You can also click the top right button to export this to a PDF document and print this out for plan sponsors. For more information on how to use Future in Focus to support important client conversations please contact your BlackRock representative.

The impact of fees

It seems obvious to say that, all else being equal, lower fees are better than higher fees. But how would a change from, say, a 0.60% fee to a 0.40% fee affect participants’ outcomes? It turns out that reducing fees by 20 basis points could translate into tens of thousands of dollars over the decades—money that could make the difference between retirement-ready and retirement not-quite-ready.

This video illustrates the impact of reducing fees and provides real-life insights that could add clarity during an investment review. Help your clients understand the impact of fees today with Future in Focus.

Hi, this is Chris Athens, DC Consultant with BlackRock. In this brief tutorial, we'll be highlighting how BlackRock's unique Future in Focus technology can help advisors, consultants, and plan sponsors make more informed decisions by visualizing the impact of plan enhancements. As you can see on the screen, the entire report can be customized with your contact information and specific to an end client.

The individual that we've set up in this example is a 35-year-old who earns $70,000 per year, enrolled in the plan five years ago. As you can see, the plan offers a standard default rate of 3% with a 50% match at 6%. From an investment standpoint, we remain consistent with the target date structure, and the only change note on the bottom left corner is fees. We transition from a Class A Retail Structure at 60 basis points and reduce that by 20 basis points to a Class K priced at only 40 basis points. However, the big question will be, what will be the impact of the retirement savings for this end participant?

Clearly, a 20 basis point reduction in fees is quite additive, with an overall 4% incremental increase in the participant's baseline. However, said another way, that's nearly $20,000 increase in the retirement savings of this individual. For more information on how you can use BlackRock's Future in Focus to support important client conversations, please contact your BlackRock representative.

Hi, this is Chris Athens, DC Consultant with BlackRock. In this brief tutorial, we'll be highlighting how BlackRock's unique Future in Focus technology can help advisors, consultants, and plan sponsors make more informed decisions by visualizing the impact of plan enhancements. As you can see on the screen, the entire report can be customized with your contact information and specific to an end client.

The individual that we've set up in this example is a 35-year-old who earns $70,000 per year, enrolled in the plan five years ago. As you can see, the plan offers a standard default rate of 3% with a 50% match at 6%. From an investment standpoint, we remain consistent with the target date structure, and the only change note on the bottom left corner is fees. We transition from a Class A Retail Structure at 60 basis points and reduce that by 20 basis points to a Class K priced at only 40 basis points. However, the big question will be, what will be the impact of the retirement savings for this end participant?

Clearly, a 20 basis point reduction in fees is quite additive, with an overall 4% incremental increase in the participant's baseline. However, said another way, that's nearly $20,000 increase in the retirement savings of this individual. For more information on how you can use BlackRock's Future in Focus to support important client conversations, please contact your BlackRock representative.

With just a few straightforward inputs, you can understand how a plan’s specific default savings and investment features currently prepare participants for retirement. You can also explore custom "what if" scenarios to identify changes that could have the biggest influence on participant outcomes—giving you valuable perspective for plan design conversations.

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Running the numbers on retirement readiness

Stretching the match

Expanding the autos

The impact of fees

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