Retirement trends influence many
Employers make 401(k) plans recruitment tools.
“Winging it is no way to plan for retirement,” says an article at cbsnews.com.
Thirty-seven percent of those at work have no retirement plan. Another 47% have a plan, but it’s not a written one, according to a Transamerica Center for Retirement Studies survey. A mere 16% have a written strategy, the best tactic because it improves commitment to saving.
The article includes a checklist of retirement issues consumers should take into consideration. The list includes factors like health care costs, inflation, estate planning, Social Security and Medicare, taxes, and contingency plans for earlier-than-expected retirement.
“The reality is, a robust retirement strategy for an older worker should consider all these factors,” the article notes.
Even the best laid plans for a comfortable retirement can be influenced by external factors like new legislation and innovative technologies. Such disruptors will impact not only consumers, but also employers and financial providers.
This week, a look at emerging retirement trends that may affect many in 2017. Are you prepared?
‘You can be young without money but you can’t be old without it.’ –Tennessee Williams
“Many important retirement trends are emerging, and new products and strategies continue to be introduced,” notes another cbsnews.com post.
Seven trends on the horizon include:
- A recession rebound continues. Stock markets are up, real estate looks good, and interest rates are on the rise—good news for investors;
- Social Security funding deficit looms and the issue “is one of the most far-reaching challenges facing policymakers today;”
- Working through retirement grows in popularity—over two-thirds of people plan to remain on the job;
- State-run retirement plans are important for those without retirement plans through employers—seven states have such programs while 20 others consider them;
- New fiduciary rules will impact the way advisors and financial institutions are compensated for advice;
- Home as asset is important in reverse mortgages, potential to rent, and sales garnering proceeds; and
- Robo-advice will “decrease financial institutions’ costs and…improve decision-making.”
Expect a greater focus on education and wellness in retirement plans, says Fidelity. Consumers want educational opportunities concerning retirement planning. Fidelity notes live web education is up 52%, and on-demand seminars are up 62% since 2012.
Benefit plans also include “total well-being programs” that discuss Health Savings Accounts (HSA) and provide incentives for employees to take part in opportunities like smoking cessation or weight loss programs.
“They are also focused on helping employees transitioning into retirement ensure their retirement savings isn’t depleted by health care costs,” the article notes.
Loans from defined contribution plans will have stricter rules the article notes, and participation in target date funds is expected to continue to grow. In 2010, 20% of those in defined contribution plans had all funds in a target date fund. Now 45% of those in defined contribution plans have all funds in a target date fund.
“For younger participants, 65% have all their assets in a target-date fund.”
‘The afternoon knows what the morning never expected.’ --Robert Frost
An article at benefitspro.com expands upon these predictions for the future of 401(k)s.
State-mandated programs might reach a national level, “and we could end up with both state and national 401(k) exchanges with the possibility of all employers being required to adopt a retirement plan,” the article says.
In a competitive job market, 401(k) benefits will be influential in attracting talent. Another suggestion is companies will seek to limit fiduciary risk via outsourcing as the number of 401(k) lawsuits increase.
Finally, benefitspro.com says technology helps to reduce administrative fees of 401(k)s and “the growing trend of fully integrated human resources information systems…has extended to the benefits space.”
For employers hoping to make 401(k) plans more appealing as a recruitment tool, benefitnews.com provides “10 Ways to Improve 401(k)s in 2017.”
Suggestions include not only offering online investment advice, integration of financial wellness learning, and inclusion of HSAs in planning, but also:
- Offering only R6 or similar share classes as cost savings measure for savers;
- Reducing costs for target-date funds;
- Addressing all fiduciary questions and concerns;
- Hiring 401(k) advisors that dedicate all of their time to these plans in order to avoid conflict of interest;
- Making available socially conscious investment opportunities—a preference for millennials;
- Including Roth conversion options; and
- Permitting after-tax contributions.
“2017 promises to be a year of change for retirement accounts” to bring more automation and regulation, according to an article at MarketWatch.
Despite the fact that 40% of consumers “don’t know what’s going on in their retirement accounts,” the future offers opportunity in three ways.
First, a growing number of employer-sponsored plans offer auto enrollment, providing “a positive impact…mostly because people are less likely to opt out than they are to opt in,” says Grant Easterbrook of Dream Forward Financial, a tech company offering employers 401(k) plans.
When new employees are automatically enrolled in a 401(k), 91% participate, compared to 42% who will sign up of their own accord.
Fifty-six percent of companies offer auto enrollment for 401(k) plans.
The second opportunity in 401(k)s will be found as retirement plans have increasing digital presence. Accounts can be synced “for a big-picture view.” Plans can also be accessed by mobile and the expectation is this tendency will grow.
Robo-advisors will also be more influential.
Finally, “the government is pushing policy to put your best interests first,” notes the article. New fiduciary guidelines are on deck; fees are addressed in regulation.
“Investors should also expect to see more educational resources from the companies and account managers about asset allocation, including more software and analysis.”
In light of these new fiduciary standards, Brexit, and a new presidential administration, established systems of wealth management “are shaking…at their core and create a tremendous amount of uncertainty for the wealth management industry,” says Aite Group in its review of wealth management trends.
Threats and opportunities exist, Aite says. The ability to act quickly to an evolving market and regulatory landscape “will serve firms well.”
Among the wealth management trends Aite mentions are changing business models—“a successful wealth management firm in the future will not likely be one that develops its ideas, products, and solutions entirely in-house.”
Also, banks will reconsider service models in a competitive environment, self-service models will grow in popularity, financial technology companies will influence acquisitions, and “inorganic intelligence emerges” as technology’s role in financial services will require “a new level of business performance.”
Lastly, Aite says chaintech will be subject to regulations as purely digital interactions prove impactful. “Delay adopting new technologies such as blockchain will start to translate into market share loss.”
Those entities that demonstrate efficiency will find success.
Ernest Hemingway said, “Retirement is the ugliest word in the language.” He may not have been referring to challenges consumers, employers, and financial providers experience in response to evolving circumstances that impact traditional reviews of retirement, although those caught unware may find themselves in an ugly situation.
Have an understanding of retirement planning trends in any context to act accordingly.