A ‘perfect storm’ for retirement readiness

By Jenny Ivy
April 14, 2011
MassMutual's Elaine Sarsynski on how advisors and sponsors can restore retirement confidence—or at least salvage what's left.

We’ve reached near epidemic scale with retirement readiness – or lack thereof – in the U.S. Nearly half of Americans don’t see themselves being able to afford retirement, and confidence has deflated to a new record low.

Elaine Sarsynski, executive VP of MassMutual’s Retirement Services Division and chairman and CEO of MassMutual International, tells the confidence problem is certainly out of hand. But advisors and sponsors still have an opportunity to help before the crisis gets worse. Just how bad is the retirement confidence problem?

Elaine Sarsynski: It’s really a systemic issue. The percentage of those who are participating in their retirement plan and who have confidence is small – 20 percent or less. And we haven’t seen the dial moving much on that confidence level.

Plus, today we really don't have traditional defined benefit plans, Social Security may not be there like it was for [baby boomers’] parents, there are regulatory changes on the horizon for retirement age; Then there’s the debt burden, as well as problems with the real estate market – participants can’t depend anymore on the equity in their homes. It’s a perfect storm for readiness. What steps can advisors and those serving retirement plan industry take to help restore that confidence?

ES: We’re still focused on enhancing education for pre-retirees and 401(k) participants. Often, participants in plans don’t have a good understanding of the funding gap – how they’ve calculated savings on an annual basis in order to have a sufficient replacement when they retire. If they haven’t been saving appropriately, they’re looking at a funding gap that can’t be solved by saving more. Retirement for them might mean reducing expenditures, traveling less, working longer, etc. Should retirement education be based on demographics – age, gender, etc.?

ES: Absolutely. One size does not fit all. Through data collection, for example, we know women are more likely to invest in target date funds than men. According to data from MassMutual’s Retirement Services Division, at year-end 2010, women had 24.3 percent of their retirement assets in asset allocation options vs. men with 24 percent. Among female investors, average balances in target-date investments are approximately double those of risk-based options.

And there’s a different approach with Gen Y. This generation needs education on the benefits of compounding interest and saving consistently. Even putting away $2,000 a year (which be as easy as not buying bottled water for a year) for 40 years with 5 percent interest and age-65 retirement could mean around $250,000 at retirement.

I think sponsors focus on static metrics. They look at a 94 percent participation rate and say, ‘Great I don’t need to do anything.’ But that participant level may be disguising who will actually be retirement ready. If they roll up those participants they might find only a 40 percent probability for participant success, and that’s when plan sponsors will look to their advisors for plan redesign. What will the future hold for workplace retirement plans?

ES: You’re going to see more regulation and oversight, more disclosure, more focus from employers to determine if a plan design is successful, and focus on plan health in a more impactful way. Plan sponsors will be more focused from a fiduciary position if a participant will be successful, and they have to measure that in terms of retirement replacement income.

This article originally appeared on the BenefitsPro web site, a Summit Business Media publication.
© 2011 BenefitsPro.