Longevity > Savings: NOW What?

Greater longevity than in the past is a good thing, as is concurrent big picture improvement in finances. But periodic economic challenges do take place, which can spell trouble—especially for retirees who did not save enough. 

A substantial majority of retirees in a study by Clever Real Estate—68%—responded that the recent economic conditions have affected their retirement finances. Almost 20% said that they have exhausted their retirement savings, and 10% said they have gone so far as to skip meals to preserve their retirement savings. 

The economic pressures retirees feel creates worries—and one of them is that they’ll outlive their retirement savings; 40% said they had such a concern. Not only that, almost 50% said they have no plan if they are around longer than their savings. Exacerbating that situation is the finding that more than half of the respondents—54%—reported that they retired earlier than they expected to, and 39% said they retired when they planned to. 

Avoiding the Situation 

There are steps a variety of parties can take to obviate such circumstances.  

Employers. Just over half of the respondents in Clever Real Estate’s survey—55%—said they thought their employers could have done more to help them prepare for retirement. 

So what can an employer do?

Pay scales are the place to start, a significant number of respondents indicated. Just under half of them—45%—said their income had not been high enough to enable them to save adequately for retirement. Another key action by which an employer can help to is offer a retirement plan; 25% said their employers did not.   

“The simplest way for employers to help employees save for retirement would be to raise salaries or their 401(k) match percentage,” Matt Brannon, a data writer at Clever Real Estate, told ASPPA Connect. Brannon added, “Of course, not every business has the resources to be able to increase those benefits, so there are a few other options.” 

Brannon suggests that employers also can take these steps: 

• Give employees immediate eligibility to contribute to a retirement account.
• Make employees immediately eligible for an employer match.
• Establish automatic employee enrollment in the retirement plan. 

“Starting a new job can be overwhelming, and new employees might be more focused on completing their day-to-day tasks rather than setting up their retirement plans. Changing the structure of the plan so employees must opt out of contributions, rather than having to opt in, has been shown to increase plan participation, lowering the chances of employees not setting up their contributions in a timely manner — or ever,” said Brannon, citing NBER research on the matter. 
 
Third party administrators. TPAs also have a role in helping employees avoid outliving their savings. Brannon suggests that they can: 

• Provide a recommended list of funds for companies to offer in their retirement plans. “Employees can get easily overwhelmed if they're given an overly extensive list of options. Third-party administrators should consider choosing no more than 20 options, focusing on diversified funds with lower fees and expense ratios,” Brannon argues. 
•  
• Provide a one- or two-sentence summary of a fund in which retirement account funds can be invested that explains its holdings in simple terms. “One thing I wish more administrators would do more is add an explanation of the general type of person who would benefit from the fund. The website should explain whether the specific fund is typically better for younger employees, who can afford to be more aggressive with a lower percentage of bonds, and older employees, who might prefer to hold more money in bonds than their younger counterparts,” Brannon suggested. 

Plan sponsors. Plan sponsors, too, can take action to help employees not exhaust their retirement savings during their lifetimes. Brannon told ASPPA Connect that plan sponsors “should recognize that 401(k) plans are just one type of retirement plan.” He stressed the importance of the health savings account (HSA), which he said is “often underutilized.” He noted that Americans over age 65 spend twice as much on health care as working-age adults, and observed that HSAs “are actually considered more tax-advantaged than 401(k) plans because users' funds are often never taxed, provided they use them for qualified medical expenses—unlike a 401(k), which will eventually require the participant to pay taxes when they access those funds.”

ROI

Helping employees avoid a situation in which they outlive their savings after retirement is, of course, a good thing to do. But it also can be good business. Brannon suggests that by helping employees save for retirement, an employer can: 

• better attract qualified job candidates; 
• increase employee satisfaction; and
• reduce job turnover, which in turn can lessen disruption to productivity and spare the employer the costs of hiring new employees. 

Helping employees save more effectively can also be good for TPAs, Brannon argues. “Offering simple and effective navigation is going to lead to more companies using your services,” he told ASPPA Connect. He continued, “If I'm an employer and I have to decide between an administrator who has a simple, transparent website/portal and another administrator who adds unnecessary hurdles for participants, I'm likely going to choose the former. If those third-party administrators want to grow their business, the best way to do that is by persuading companies that their plans result in higher employee utilization and satisfaction.” 
And boosting employee financial readiness to retire has benefits beyond that, Brannon argues. 

On a broader level, he told ASPPA Connect, all stakeholders “benefit from living in a society where seniors are taken care of. A society with worse retirement benefits is more likely to see elderly citizens struggle to meet their own costs.” 

About the Study 

The study is based on a survey of 1,000 Americans conducted Dec. 1-2, 2023 in which each respondent answered up to 27 questions related to their financial situation, retirement preparations, and concerns about retirement and financial planning. Clever Real Estate, an education platform for home buyers, sellers, and investors, commissioned the study.