When working becomes the new retirement plan

By Jenny Ivy
May 24, 2011
Q and A with Catherine Collinson, president of the Transamerica Center for Retirement Studies

Startling statistics from Transamerica Center for Retirement Studies' latest retirement survey shows many American workers haven't formulated a solid retirement plan besides to work longer—and then keep working.

[See Study: Almost 40 percent of workers may never retire]

Working longer has become the new retirement plan for many workers at every age and income level. According to Catherine Collinson (right), president of the Transamerica Center for Retirement Studies, this strategy is simply not viable.

BenefitsPro caught up with Collinson to discuss how this new retirement reality is impacting workers, their employers, and plan advisors trying to avoid a looming crisis.

BenefitsPro: With more retirement-age people in the work force, how could this affect the employment market?

Catherine Collinson: We need to be mindful of the types of jobs older Americans will be best suited for and how [having them in the work force] is going to also impact the younger workers that are beginning employment.

It’s also important for those closer to retirement age and planning to work longer to keep up their job skills in order to participate in the job market.

From a public policy perspective, with so many workers planning to work past age 65, policymakers should consider offering tax incentives for employers to hire older workers along with offering job training / retraining programs for older workers.

BP: The 12th Annual Transamerica Retirement Survey emphasizes that workers should have a backup plan for retirement income in case they're unable to work before their planned retirement, yet only 19 percent surveyed said they have one. What do you envision as being sufficient a “backup plan”?

CC: Part of that backup plan – especially for workers nearing retirement who can foresee a shortfall in their savings – is to sit down and look at their financial situation. If they see themselves forced out of working sooner, that’s where insurance and protection products might be helpful for them. For example, if they’re the bread winner and they’re looking to support their family, it’s important to look at, say, a life insurance policy or long-term care insurance. Protection products like these can preserve savings or help them with a health situation.

Plus, there’s opportunity for catch-up contributions [which people age 50 and older may be allowed to make with their 401(k), 403(b), 457(b) plan or IRA.]

BP: Twenty-seven percent of workers never discuss savings, investing, and planning for retirement with their family and friends. Why do you think retirement-related topics don't frequently come up in conversations?

CC: There are a number of trends that explain why workers are not inspired to talk about it. One is in that in past (especially for baby boomers), talking about finances was a very sticky subject; It’s tacky to talk about personal balance sheets, and today it’s still not appropriate to talk about details of your financial status.

But that doesn’t mean you shouldn’t have conceptual conversations; you should be having conversations in which you’re thinking about expenses and how you can achieve financial goals.

BP: Does that mean husbands and wives are also not talking about retirement?

CC: Yes, women especially are less likely to be involved with retirement planning and conversations. This trend applies to single women as well.

BP: We’ve seen a spike in 401(k) assets. Does this mean we’ve gotten the message that we need to start saving more for retirement? Or does the credit go to recent improvements in the market?

CC: It’s both. The Great Recession prompted workers to take pause and look at retirement and how they might be impacted. It has underscored the importance of retirement. Even through confidence is low, the urgency is coming back to save and the equity market recovery has been adding some optimism.

BP: A large percentage of workers would like more education and advice from their company, as opposed to an outside source. And conversely, employers have lately expressed their concern that their workers aren’t prepared enough for retirement. What can both employers and employees do to boost retirement education and information?

CC: A good starting point is with the retirement plan provider. If the retirement plan is through an employer, there are a vast majority of providers that have built out great resources on their website, and many will argue that they’re underutilized.

Another opportunity is for employers to remind workers that they're in the retirement plan until they leave the job or opt out. When employers are going through enrollment, even though workers are already enrolled in the retirement plan, this is a great time for employers to remind workers to take a look at their goals, their savings, and their asset allocation, and determine if they’re on track. If an employee is not in the plan, [enrollment season] is a great opportunity to remind them to join.

BP: How can plan advisors work with their clients to improve workers' retirement confidence?

CC: The first step an advisor can do is, when they're recommending providers, to look at the full complement of tools and resources available. When working with a client, they can talk about the employee base, and from there work with that employer to find out where the best opportunities are to help employees. It will strengthen the relationship with the client and provide a resource for workers, or [the advisor will] find out if that client even has an interest in serving workers — at least with setting retirement expectations.

BP: What do you believe is going to be the best way to get workers to boost their participation in retirement plans and get them better prepared for retirement? Will it be education? Automatic enrollment? Mandatory retirement plans for employers? Higher employer matches?

CC: It’s going to be a combination of those things, and it’s going to be important to underscore that there are number of opportunities.

One is through education. Our research has found [retirement education] needs to be happening as early as junior high and high school. There are huge discrepancies between a high school diploma and a college education. Both career opportunities and retirement outlook improve with education levels.

Education can also be done for workers whose employer doesn't offer a plan and it’s something we can still promote. What makes 401(k) plans so compelling is the convenience of payroll deduction. If there’s direct deposit at your employer, you can set up an IRA and fund it that way, which will be automating the habit of saving. Automatic enrollment is a great opportunity; it helps boost participation rates for part-time and lower income workers.

BP: How do you feel about employer mandates for retirement plans?

CC: Especially in this economy, small businesses in particular are feeling overwhelmed just to stay afloat, turn a profit, and pay workers. A mandate with a seemingly added expense is an area in which to tread lightly. However, if we look at it differently, more incentives in place for employers to establish a plan and a match couldn’t hurt.

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