Why is retirement income a critical focus, what should be done, and what resources are available to support advisors?
These critical questions were asked and answered in a Monday morning presentation at the 2022 NAPA 401(k) Summit.
Christine Stokes, Nuveen’s Head of Institutional and Retirement Sales Development, told attendees that lifetime income had been a concept discussed since right after the Pension Protection Act (PPA), but so many plan fiduciaries, advisors, and sponsors say they’re still taking a wait-and-see approach.
“They’re thinking of lifetime income as this nebulous concept instead of something actionable,” she said in a pre-session interview.
Claiming it should be more of a practice approach, she noted the two main gaps that the retirement industry traditionally tried to solve—coverage and savings rates.
“The focus has now shifted to recognizing there is a ‘guarantee gap’ in this industry that’s looming and setting Americans up for poor outcomes,” Stokes explained. “We’re essentially going into this first generation of elective choices to draw down their assets. They have to balance all of their retirement risks versus their individual inputs to create a bridging investment strategy to make their assets less through their lifetime. It’s unfair to do to somebody.”
Government and policymakers realize the difficulty participants face, and “they won’t stop passing bills like the SECURE Act until we get better coverage and closure on this guaranteed gap.”
Holistic support
Employees also expect more from their employers in terms of support, including guidance and education for sustainable decumulation strategies.
“We know financial stress has really increased for many since the global pandemic,” she added. “You have half of employees saying that they’re distracted at work because of their finances. But you also have almost three-quarters of employees saying that they’re more attracted to another company if they feel that that company cares more about their holistic financial wellbeing.”
It’s leading to what she called “a tale of two retirement plans”—the first being 401k and retirement plans that are essentially the supplemental savings plans they are today.
“But more and more, you’re seeing what we’re calling true retirement plans evolve,” Stokes concluded. “As the market bifurcates, you’re going to see one type of plan becoming preferred by sponsors and participants as advantageous over to the other. It’s a huge opportunity for advisors and consultants to support because plan sponsors will be looking to that for support as new regulation guidance emerges. It’s a win, win, win opportunity as you think about strategic plan design.”