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Retirement

Lifetime income: Setting up the conversation with plan sponsors

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Initiating the conversation

Driving conversations with plan sponsors on the value and timeliness of guaranteed lifetime income has never been more pressing.

Beginning the discussion with employers starts with understanding the fundamental role of a plan sponsor and an advisor. As George Fraser, Senior Partner, Fraser Group, a division of BCG, an Alera company says, “I used to think our job was telling people how to save, but really, I think it is broader: it’s to help people reduce financial stress. The biggest worry for anyone working at a company today is being ready to retire when it’s time.”

On the topic of addressing urgency with plan committees and establishing why we need to be discussing lifetime income, Jason Chepenik with OneDigital®  feels we’ve had too much inertia. “The demographics speak to the urgency here. We’ve had automatic enrollment for 20 years. In that time, we’ve gotten people into the 401(k) plan, but no one knows how to decumulate. We have to make it easy to understand how to turn those savings into an income stream,” he explains. 

Renee Scherzer with OneDigital looks to the pandemic and the changing relationships between employers and employees over that time, noting that “employees are now expecting more from their employers. Coming through the pandemic, that relationship has tightened, and culturally, firms want to support their employees more than ever. We need to examine the sponsor’s whole benefits program and see if they are acting as a true retirement resource for their employees.”

I think many conversations are stale. Too many meetings with sponsors are just investment reviews, recordkeeper issues, updates on fees. They are not pushing the envelope on what is a relevant measure of success. If we don’t focus on plan design and address the need for lifetime income, we aren’t getting our clients and their workers where they need to be.
Jason Chepenik

Evolving the conversation

Renee Scherzer highlights the importance of the partnership between advisors and plan sponsors, saying, “For plan sponsors, lifetime income is confusing. As the offerings have expanded in the marketplace, we need to have deeper conversations. Sponsors trust us, because we’re doing the due diligence on the underlying investment options and giving that information to them in digestible pieces.”

Renee goes on to say, “We need to take a step back and approach this as one part of the overall vetting process. Our role is to explain it so the sponsor and their investment committee can make informed decisions with the proper due diligence.”

On his approach, George Fraser adds, “Through my business model, I spent a lot of time trying to make what we do understandable. Make it simple.”

Jason Chepenik on building successful client relationships

George Fraser on the value of Social Security

George Fraser, Senior Partner, Fraser Group, a division of BCG, an Alera company, is a firm advocate of the value of Social Security. “I recently read that over 90% of 65-year-olds have $60,000 or less in their 401(k) or 403(b) plan. I believe Social Security will be there for people. Even at $1,000 a month, that’s nearly a quarter-million dollars between ages 65 and 85. That is a big base of income.”

According to research, only 4% of retirees claim Social Security at the most financially optimal time. This means the remaining retirees in the study are collectively losing $3.4 trillion, or around $111,000 per household.1

As advisors, we need to make sure participants have a strategy for taking Social Security at the right time.

George Fraser

He adds that financial professionals need to start looking at Social Security as an asset class. “It is a fixed account — a guaranteed sum of money that a worker will receive. That changes the way you invest the rest of your portfolio in your retirement plan.”

Expanding the conversation to include participants

The advisor and plan sponsor should be in agreement when it comes to speaking to participants and getting them to understand their retirement options. As Jason explains, “We’ve been using automatic enrollments for 20 years. We made it easy for participants to get into the plan and accumulate wealth. But inertia has set in. We need to make it easy to understand how you turn that money saved into an income stream.”

Jason suggests pivoting the message, so it’s relevant to the person in the room. Start the conversation in a very personal way by asking questions, such as:

When it comes to having these conversations with employees and maintaining understandable and simple communication, Renee looks to advisors for education. She feels, “Employees don’t look at this the way we think they do. They trust us to do the work. So if an annuity is the right vehicle for them, then they will trust that. But it is our job to make sure it fits their needs.”

On bringing together plan sponsors and participants, Jason is driving the need to educate companies on which options might work best. “I think we can do a better job of talking to sponsors. Industries that had defined benefit plans will get lifetime income quickly, higher income earners will understand this, but plan design has to work for all employees.”

Renee takes this a step further, seeing the importance of making lifetime income automatic for employees, as “most aren’t looking to make decisions. We see this in the data around auto enrollment and auto escalation. If we are not adding lifetime income into the default, we are going to see difficulties with participant uptake.”

Advice to other advisors

The simplest form of communication is often the best way to proceed. George advises, “If we do what is best for the participant every single time, we will do great.” Jason agrees on the need for simple and direct messaging, adding that “the key is making it relevant. We have to ask what we can do to make the plan more personally relevant to the majority of people.”

We need to be the moving force to get lifetime income into being an integral part of what we offer.
Renee Scherzer

Renee Scherzer’s top tips for starting the lifetime income conversation

Renee sees a much larger role for advisors in the lifetime income discussion. “To do this right, [lifetime income] needs to be integrated [from the start] and not just at the point of decumulation. We need to be the voice for our clients and their employees by making lifetime income an integral part of our offer.”

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In this issue
Retirement Closing savings gaps for participants
Getting access to a retirement plan remains a fundamental issue for many Americans. Jeff Cullen, Lisa (Garcia) Drake and Jania Stout discuss the role advisors can play in bridging the gap.
Retirement Lifetime income: Getting to implementation
It’s imperative for plan sponsors to include participants in the lifetime income implementation process. Nicole Corning, Jeff Cullen, Paula Hendrickson and Bruce Lanser evaluate different solutions.
Retirement Securing retirement in America
How can we solve the core challenges affecting retirement security? Angela Antonelli, Jeff Brown, Philip Chao and Barbara Delaney look toward TIAA’s Retirement Bill of Rights to provide the blueprint.

Endnotes

* Clicking this link will take you to a website independent of and unaffiliated with Nuveen. The information and services provided on this independent site are not reviewed, guaranteed, or endorsed by Nuveen or its affiliates. 

1 United Income, 2019.

Any guarantees are backed by the claims-paying ability of the issuing company.

Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association of America (TIAA).

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals.

This information does not constitute investment research as defined under MiFID.

Please note that this information should not replace a client’s consultation with a tax professional regarding their tax situation. Nuveen is not a tax advisor. Clients should consult their professional advisors before making any tax or investment decisions.

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