d The uring • g roup the How ir c onc w to o rlude k aing ddd ry e te ss ha a rtts. he the They fur b e aha bsenc vior the e a l a of r rspe a atceccd e t s of ss the to irr e lif le tir e vt e eim m l of e ent inc re spe tom iren m ed eting. nt hr oug sa For tis h a fa ex cd a tion a e m fin ple es d , 7.8 on tb he ene Sp fit ea n p d sc la ing n ale pin Re la fry om s a t ir 1 t cerm it o ic e10 a nt l r (ole wit h in 2 10 ret ir be ee ing out Sur m cost om ve y e sa s a.tnd is RSR fied otC he ) .P ra rre tne sea rs r cc hite sh d ow J.P . sa Mor vings r gan e re gsea ret r— ch or tha st tic ha kes si r sh moc ilakr — fin a dm ings ong : H re ighe tirere s i spe s c nding omm sa on: tisP fa ec op tion a le wnd ish confidenc the e w y’e dr e sa avss ed oc m iaor tee d a w s t ith he indiv y fac idua e pot ls e w nt itia h l r pe ens tirion em einc nt om cost e. s Thi tha s su t the gg ye ha sts d n’ em t r peloy ally e rc s onsi should dere td hin prke v ca ious reful lyly , su ab ch a outs how they can help participants translate their pool of defined contribution (DC) money into a pension-like experience. long-term care. Interestingly, this regret seems to dissipate over time for retirees. Help overcoming sticker Howeversh , toc hek g crould oup not allow ed ,r e tod tira ee y s m to ost b e40 m 1( or ke ) c or om 40 for 3(tb a)b le pla w ns it h sp are e not nding buil d t ow forn th dec eum ir aula sse tion ts. . Plan sponsors, providers, and • p olicW ym ay as t keo rs he mlp ight pr e con retsiride eer s : understand the realities of life in retirement so that the prospect of retirement spending isn’t so daunting. The Spending in Retirem A ent V Sur iew vey sh From owed a t dis h tinc e Partner t disconnect bes: tw een how • The concept of a retirement tier — or defined contribution plan investments specifically designed for retirees — early C o re m tir forta ees tble houg Rht eti tr he ees y w : ould Com for livet atb he leir Re da tir y- eto es -d ra ey p o lif rteed in r int ee tir rm em ed eia ntt e a nd lev e how ls of old inc eom r reet ir (si ee m s r ilaerp tor o tA ev de trhe agy e has been a popular topic over the past few years. But most defined contribution plans still have only a couple Practical Takeaways on EBRI’s Retirees)ha but d am ctor ua elly in a spe ssnt et st he —ir b teim twee. eThe n $99,0 realit 00 y a wnd as t $3 ha 20 t ,000 retire . m They ent a ha ctd iv ie tie asi s, su ly mca h a nas spe geable nding deb tt. im They e witw h fa erem m ily or , e m ay of fixed-income options. One or two fixed-income options are unlikely to meet the diverse needs of retirees. likely to sa not y tbhe e ir as e retxp ire em ns eiv nt e sa as r vings a etireers t e su hin ffk ic . ie Fu ntr tor he re, ve ev n a en th bov ee “tJus heir t- G ne ee ttd ing s a -By nd ”t ha Rett ir the eey s sc pla or n to g ed the row ir r,e m tiraeint me ant in, o r Retiree Profile Research Additional alternatives include target-date funds with a decumulation glidepath and retiree-focused managed spend only ha p ap sm inea ss ll p faor irly tion o high f t— he su ir g fin ge ast ncing ial a tha sse t te sv in r en low etire le mv ee nt ls. of They r incom epeor m ted ay h not av ing imp ae d weid a e ha vap rip ey ty r e of tirsour emec nt es of , accounts. Stable-value funds also may be part of the retirement tier. Plans without a viable retirement tier will income. A pr nd ovide on a d vre erta irg ee e, s ha thev ye b te he lie v se ec dur the ityir of stho anda merow d of nelirv sh ing ip ha and s /or not low cha nge debt d le siv nc els e . the ir working years. Comfortable struggle to retain participants in the DC plan postretirement. Retir •e es H wow ere ttohe m a second ke the m conne ost sa cttion isfied be t w witeh th en h ee ira rlteh a tirend mew nt e a lif lte h a dft ur eing r the the Aff w lue ornt king Rey tiera eress. . Again, keep in mind the • One way to replicate the “pension experience” is to embed institutionally priced, very low-commission annuities importance to retirees of varied sources of income: Health savings accounts can act as retirement vehicles, into the defined contribution plan in such a way that they are automated for retirees. This would allow some Spending in retirement has been at the top of the agenda for the Employee Benefit Research Institute’s Retirement providing another potential income source to retirees. portion of retirement savings to be guaranteed without the need for retirees to do the complex modeling Security Research Center and its sustaining Partners. In a new study, EBRI used data from its proprietary Spending in • Means of creating “spending paychecks.” Evidence from J.P. Morgan Chase research shows that people 1 required to allocate savings toward annuities. Retirement Survey to divide respondents into distinct groups — or profiles — based on their self-reported financial Affluent Retirees: Affluent Retirees were more likely to have high levels of financial assets ($320,000 or more) manage their cashflow out of money that’s in their bank account. If regular income automatically flows from • Lifetime income illustrations can be used to reorient the way people think about their retirement savings. For status and spending behavior. The groups are Average Retirees, who make up 28 percent of total respondents; and annual income ($100,000 or more). They were mostly mortgage-free homeowners, with no debt. Affluent Retirees savings into a retirees’ checking account, that can make spending easier and increase spending confidence. example, such illustrations could show how a savings “floor” might be established as savings are drawn down. Comfortable Retirees (22 percent); Affluent Retirees (19 percent); Struggling Retirees (18 percent); and “Just-Getting- reported having access to more diverse sources of retirement income than the retirees from the other groups, with The illustration could show the impact of maintaining 25 percent of one’s balance, for instance, throughout By” Retirees (12 percent). defined benefit pension plans and personal savings being the most commonly cited. They rarely reported having credit The Retirement Tier and Advice retirement as one draws down their savings. This could help retirees understand that spending in retirement is card and auto loan debt. The majority of Affluent Retirees reported that their standard of living hasn't changed or has not an “all-or-nothing” proposition; it is possible to maintain a cushion and protection against late-in-life health Although the Spending in Retirement Survey didn’t ask individuals whether they had an advisor or The Retirement Security Research Center is funded by the following Partners: improved since retirement. They were, on average, the most satisfied with their retirement life of all retiree groups. care needs while still purchasing an annuity to have a guaranteed stream of income. not, it specifically screened out retirees with more than $1 million in assets. As such, respondents were inherently less likely to have a financial advisor than those with $1 million in assets or more. American Funds/Capital Group The RSRC Partners focused on how to make advice more scalable so that retirees with less assets Ameriprise Financial The Role of Debt: have access to some level of financial assistance. They discussed how the retirement tier could be BlackRock Struggling Retirees: Struggling Retirees had low levels of financial assets (less than or equal to $99,000) harnessed to include embedded guidance or advice that provides support in a lower-cost, more scalable way. Empower Retirement and income (less than $40,000 annually). They were more likely than any other group to rent rather than own their The research showing so many older households struggling with burdensome debt was also They noted that the traditional role of an advisor is not only one of guiding retirees’ investments but also of reinforcing J.P. Morgan homes. They were also most likely to have unmanageable debt, such as credit card and medical debt. On average, explored by the RSRC. Specifically, the debt dimension appeared to be a key contributor to retirees’ plans and helping them understand whether they're on track or not. In other words, there is an element of Mercer these retirees rated their health status the worst out of all groups. Struggling Retirees rely on Social Security to provide Struggling Retirees’ lack of satisfaction, anxiety, and poor standard of living. The RSRC Partners hand-holding that occurs when advisors are available to retirees. Principal Financial Group the bulk of their retirement income. They believed they have a reduced standard of living compared with when they noted that some of those households must have wished to work longer than they did to pay Prudential As such, it will be valuable to explore how the retirement tier might replicate that hand-holding experience. For were working and rated their retirement life satisfaction lowest of all, with an average score of 5.8 on the 1 to 10 scale. down their debt, but they were likely prevented from doing so due to their health or other issues SS&C Technologies example, financial advisors often address how to navigate long-term-care needs. However, for those without an that were out of their control. Plan sponsors, providers, and policymakers might consider: advisor, this area may not be addressed unt Tra il w nsa ell int merica o re R tire etm ire ent m ew nhe t Ser n itv ic me as y be too late. • The importance of a more holistic view of retirement income security that includes debt management programs Wells Fargo for preretirees and retirees alike. However, research from the Workplace Wellness Survey shows that workers “Just-Getting-By” Retirees: “Just-Getting-By” Retirees also had low levels of financial assets and income, may fail to take advantage of financial wellness tools made available to them. As such, it is important to Conclusion similar to Struggling Retirees. However, unlike Struggling Retirees, just over half of them owned their houses free and integrate retirement and financial wellness tools to facilitate usage and increase awareness that these tools are With a view to unearthing the practical implications of these retiree profiles, EBRI turned to the Retirement Security Faced with a rich set of data and analysis, the RSRC Partners were able to identify a plethora of ways in which clear. The majority reported no debt or easily manageable debt, and they were less likely than Struggling Retirees to available. Research Center (RSRC) Partners for their views on key takeaways for employers, providers, and policymakers to employers, providers, and policymakers can address the unique needs of various retiree profiles. These solutions have credit card or medical debt. While “Just-Getting-By” Retirees reported Social Security as a major source of income, • Harnessing technology to tailor messaging, tools, and approaches for those with debt vs. those without: What consider in facilitating the most successful outcomes for each category of retiree. This Point of View first outlines the spanned investment, education, and advice, as well as financial wellbeing — and they took into account the fact that they were still reasonably likely to believe that their standard of living is the same in retirement as when they were will be valuable to the Struggling Retirees with debt is clearly going to be very different than what will resonate five retirement profiles and then summarizes Partners’ views on the most compelling, practical implications. one size does not fit all when it comes to meeting the needs of individuals who are on different paths through their employed. Struggling Retirees gave their retirement life satisfaction score as 7.2 out of 10, on average. with “Just-Getting-By” Retirees who don't have the same levels of debt — even though in many other ways retirement journey. It is important to note that these paths may change as well. For example, given their limited these cohorts are very similar. Thus, tailoring messaging, tools, and approaches is essential. The EBRI Study: Five Profiles in Retirement financial resources, “Just-Getting-By” Retirees may effectively be Struggling Retirees in waiting: One major financial • Approaches to educating preretirees about the reality of working in retirement. The Retirement Confidence shock could cause them to no longer be just getting by in retirement. It is also worth pointing out that retirees’ paths Practical Takeaways From the RSRC Partners Survey shows that far more workers believe they will continue some sort of work for pay in retirement than may be set well before they reach actual retirement age: Addressing debt levels well before individuals approach The most salient characteristics used in identifying the retiree profiles from the survey were financial assets, income, what retirees actually report. Further, very few retirees in the Spending in Retirement Survey worked for pay in RSRC Partners consist of asset managers, recordkeepers, insurance companies, banks, advisory firms, and other retirement is crucial, as those facing retirement with unmanageable debt may be left with very few options to improve debt, and homeownership. The profiles reflect standard of living in retirement, retirement satisfaction levels, and retirement. If indebted retirees are planning to supplement their retirement income with work for pay, this may retirement providers. In evaluating the retiree profiles developed by EBRI, they found that the most salient drivers of their situation. Further, one must consider not just the financial but the behavioral aspects of retirement and how they approaches to retirement spending of the cohorts. be an unrealistic expectation. retirement satisfaction and security appear to be guaranteed sources of income, low debt, a clear spend-down strategy, factor into spending. Finally, it is critical to recognize that future retirees may face different challenges. The best- • Facilitating a better understanding of the importance of a mortgage-free home in retirement. “Just-Getting-By” and employer-sponsored retirement help, including advisory services. Following are more detailed views of the RSRC situated retirees — those who were Comfortable or Affluent — tended to have more guaranteed sources of retirement Retirees scored their retirement satisfaction considerably higher than Struggling Retirees, and a key difference Partners: income, such as pension plans, than will those retiring after them. between the two was that “Just-Getting-By” Retirees were far more likely to have paid off their home. Guaranteed Income: Average Retirees: Average Retirees were likely to report modest levels of financial assets ($99,000 or less) Because sources of income were such an important driver of retirement spending across these retiree “Correct” Amount of Saving EBRI and the RSRC will continue to explore the topic of helping retirees navigate a satisfying and secure retirement, and intermediate levels of income (between $40,000 and $100,000 annually). The majority within this group rely on profiles, the RSRC Partners focused on the role of pensions, Social Security, and other guaranteed income. d inc efin luding ed b e cne onfit sid p ee ring nsion p the la rol n einc ofom rac ee a a long nd e w thni ith So city cin r ial Se etir ce ur m ite ynt for spe the nding ir re. tir ement income. Six in ten Average Retirees RSRC Partners also focused on Affluent Retirees’ reluctance to spend down their hard-earned nest The RSRC started by noting that the retirement spending conversation will be very different when seek to maintain or grow their financial assets in retirement. Nearly half had credit card debt, and almost as many also egg. Often, this was associated with the desire to maintain the nest egg in case of unexpected needs individuals rely on pension income vs. a 401(k) plan or Social Security. Specifically, retirees categorized as had a car loan. Average Retirees typically reported their standard of living in retirement as unchanged from what it was later in retirement, such as assisted living expenses. This desire to maintain rather than spend down Affluent, Comfortable, or even Average were found to be more likely to have a guaranteed stream from pension plans one’s nest egg was evident with other cohorts as well. One RSRC Partner gave the example of her in- compared with Struggling or “Just-Getting-By” Retirees — or potentially future retirees as well. Further, retirees across laws, who have enough retirement money to be comfortable but would rather eat ramen noodles than spend their the board were generally loath to spend down their personal assets. Often, this preference to maintain the nest egg 2 1 a ss Börs In eS ts e c.p h P te -S la mb up n sp a en, r onsor 2020 Axel ,s, p H EB ., R Tab rov I sid urve ea e rBuc sy,e a d he nd 2, r- 000 Koe polic n re y etire m n,a Mic k de ho rha s us m el e ight D. ho ld H c s urd onsi ag , ea d dnd e 62 r :S us to a 75 nny R eo ahw rs o eld dd a en r.d “Sav with ing les R s e tha gre n t.$1 ” W orking paper. throughout retirement was associated with the uncertainties surrounding life and spending needs in retirement. mil National lion in Bure financ au ia olf aEc sso eno ts.mic Research, 2018. http://www.nber.org/papers/w25238