Retirement plan recordkeepers and advisors have made significant investments in financial wellness tools and advice solutions, but uptake by participants remains limited, according to a recent report by Cerulli Associates.
Cerulli found that many pre-retirees (those 50 and older) have difficulty estimating how much they will need in retirement and developing a retirement plan. Forty-five percent think they are not saving enough, and 59% struggle to calculate required savings.
As a result, they are unable to determine how much they expect to spend, and so how much they should save or whether they have accumulated enough savings.
Cerulli’s research showed that 71% of pre-retirees did not seek advice or planning help from their 401(k) plan provider in the past year. Nor did they much use the financial wellness tools offered by their recordkeeper.
This strongly suggests that advisors and recordkeepers need to improve awareness and engagement.
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Helping pre-retirees
Cerulli found that 45% of pre-retirees do not have a retirement plan, while 53% either have one or are working on one. Those with a plan report higher confidence that they will be able to maintain their standard of living in retirement, compared with 20% without one.
Indeed, 68% of retirees with a plan reported that they have succeeded in maintaining their pre-retirement style of life.
Cerulli also found that few pre-retirees are going to their recordkeeper for retirement planning and advice, despite the high quality of these solutions.
Pre-retirees who do not work with an advisor, the research showed, lack confidence in their ability to determine what type of distributions/withdrawals to take from their retirement accounts.
According to Cerulli senior analyst Elizabeth Chiffer, participants may not recognize the full value of recordkeeper tools or available offerings if they are unable to implement the recommendations or if the recommendations are unspecific or confusing.
“Reducing friction points has the potential to improve participant outcomes and show plan sponsor clients that participants are making positive changes to improve their retirement readiness,” Chiffer said.
The upside of doing so is that recordkeepers can then show positive interaction metrics to current and prospective plan sponsor clients.
Recordkeepers also need to evolve their messaging for pre-retirees, Chiffer said.
“Instead of emphasizing a shortfall, recordkeepers should shift participant focus to how they can make the savings they have work in retirement,” she said.
Recordkeepers and plan advisors should develop or improve awareness and accessibility of financial planning tools for pre-retirees and work with plan sponsors to promote the advice solutions that are already available, she added.
Cerulli also recommends that recordkeepers and plan advisors collaborate to promote advice offerings and present a streamlined wellness and advice offering to plan sponsor clients. Such collaboration, it noted, reduces confusion, encourages more use of advice programs among participants, and helps service providers win and retain participant assets.
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