The current generation of workers is gearing up for a retirement that’s increasingly dependent on their own actions. As a result, plan sponsors must think differently about plan design and investment solutions. Here are key stats from Northern Trust Asset Management’s 2017 DC Participant Survey to assist in building a better DC plan.
- 24 percent of Workers Expect to Retire Before Age 65
While 73 percent of retirees did retire before 65, current participants plan to work longer, will rely heavily on 401k plans, and will seek an improved lifestyle at retirement. Yet they’re not confident they’ll meet their retirement goals.
- 43 percent of Workers Think They Need $1 Million to Retire
But only 25 percent of retirees needed a nest egg that big. Both retirees and workers say the best piece of guidance they received in helping to prepare for retirement was the amount of money they would need to be financially secure. What can sponsors do? Use a retirement income framework to estimate target income, and provide actionable guidance based on the unique needs of participants.
- 47 percent of Workers View the Investment Manager as Important
Performance still ranks as the most important criteria, with the investment manager falling behind fees and investment objectives. Consider streamlining your menu through a white label approach to help participants make better investment decisions. We suggest a sweet spot of 12 options.
- 85 percent of Workers and 86 percent of Retirees Are Concerned About Losing Money
Risk is always top of mind in retirement investing, but risk has many components that must be understood. While individuals tend to focus on the risk of losing money, it’s often equally important to think about the danger of not taking enough risk to meet their objectives. Consider incorporating factor-based strategies within the investment menu, which can help manage risk and minimize volatility to provide a potentially smoother ride for participants.
- 48 percent of Workers, 59 percent of Retirees Want EGS in Their 401k
As the world evolves and new generations of investors enter the workplace, demand is increasing for investments that align with individual and/or company values. Consider adding environmental, social and governance (ESG) options to the menu.
- 91 percent of Workers Like Target Date Funds
But they shouldn’t be just “set it and forget it” options that managers launched years ago. Take a fresh look at the plan’s objectives compared to that of the target date solution to ensure the two continue to align. Consider evaluating the solution by analyzing how well it provides coverage of the retirement liability of the plan participants. This unique lens may reveal that too much (or too little) risk is on the line for many participants.
Expectations Are Changing
Current workers see retirement differently and plan sponsors should evolve to meet their unique needs. Educating participants with information they can use, simplifying investment choices, looking at ESG, re-evaluating target date funds, and addressing risk in a holistic way are some ways to help deliver better retirement outcomes for DC participants, based on the survey’s full findings.
Sabrina Bailey is Global Head of Retirement Solutions with Northern Trust Asset Management.
Sabrina Bailey is the Global Head, Investment & Wealth Solutions of Refinitiv, a London Stock Exchange Group (LSEG).
