Retirement may seem like a tabletop issue in the benefits landscape, but we have entered a new era where many employees view their retirement plans differently.
Only 62% of workers are confident they will have enough funds to retire, according to the Employee Benefit Research Institute. And recent research from Morgan Stanley and SHRM in September 2021 found that there are three main fears about retirement: not having enough savings, surviving retirement savings, or losing everything in a declining market. More than three in four say saving for retirement is one of the most important employer-sponsored financial benefits, according to our July 2020 study of plan participants.
Clearly, employers have a responsibility to meet employees where they are today with thoughtful retirement benefits, but where exactly is it?
Choose your own adventure
Research from Morgan Stanley at Work also found that 401 (k) retirement accounts are the first investment made for more than half of the workforce. Workers also mentally compartmentalize their retirement investments separately from the rest of their finances. It is therefore all the more important that the retirement programs you offer serve their true purpose: to help prepare every employee for their future retirement.
But not all employees have the same future needs. For the first time we have five working generations side by side. We also grapple with important systemic justice issues around diversity, equity and inclusion, both as a society and as a business community.
And amid an ongoing global pandemic and people leaving their current jobs for new opportunities like never before, it makes sense that many participants may ask for a different approach to both planning and spending their retirement benefits. Simply put, one size cannot fit all: Even at the broadest level, not all people will retire at the same age or in the same living environment, with the same level of health and mobility, or with the same nest egg and the same spending needs.
Make it personal
Friendly, personalized experiences are the new differentiator in a world where employees need (and expect) support tailored to their unique financial journey. It is important for employers to understand how this trend is affecting employees’ perceptions of their retirement plan choices.
For example, some generations watched their parents or grandparents retired and decided they wanted to do things differently. Some may choose to spend more of their savings in their dedicated retirement account during the early years of retirement – perhaps traveling or buying a dream home when they expect to be healthier. – even if it means the compromise of reducing expenses in the following years.
Traditional and linear retirement spending plans cannot quite facilitate this type of retirement choice. To achieve this, providers must be able to make dynamic and personalized adjustments along the way, from adding discretionary spending for travel on top of the base spending of the first 15 years, to ” evolve with changing lifestyles or align planned spending with unexpected market conditions. .
After covid, as priorities change for many of us and decisions about quality of life take on a new urgency, retirement planning becomes more personal.
Providing a retirement solution that can accommodate the full range of needs of diverse workers can be complex, but there are a few key principles that can help you make your retirement benefits more beneficial to your employees.
- Go granular – Many employees want help tailoring their retirement savings to help them budget for changing needs through and through their golden years, but the first step is to help them make the connection between their personal goals, where they are today and how they can make the most of them. value of their benefits in the workplace. That way, they can begin to chart their own path towards creating disposable income, assess progress, and understand how investing in their future benefits them and their families over time.
- Take a Bigger View – As employees manage their regular budget, credit, cost of living, and debt, employers can help them understand the context in which these seemingly disparate parts of their financial world operate. For example, which of their current expenses are fixed? What will eventually fall, like a mortgage? What are the essential or discretionary elements? The more employees understand, the more they will be able to engage and personalize.
- Leverage professional advice – A knowledgeable professional can help employees navigate the many unknowns of retirement and answer more personal questions, whether it’s making financial decisions, planning effectively, or getting the most out of benefits. . Better knowledge also means a greater chance that your employees will feel more confident to participate in your pension plan and apply the benefits to their unique situation.
- Plan for regular checks. With personalized planning comes some trade-offs, such as the need for more active involvement of financial advisers and personal management of retirement accounts both now and in the future. Set markers to remind employees of regular updates and registrations just to make sure their retirement plan is always in line with their goals, especially for more complex spending and retirement strategies.
Personal freedom on solid financial foundations
Retirement can be technical, but it’s also ambitious. So it’s no wonder that employees and retirees are asking for a more flexible approach that can adapt to what’s going on in their lives.
That’s why it’s important to communicate with your employees today and help them understand the importance of maximizing their choices and benefits, whether it’s a more personalized pension plan structure or simply a slow, steady journey of disciplined savings and spending. Make sure employees understand the true scope of their needs as well as their wants and that they are supported in their choices that make sense for their personal goals.
Anthony bunnell is Managing Director, Head of Pensions at Morgan Stanley at Work.
Disclosures: This article has been prepared for informational purposes only. The information and data in the article was obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or guarantees the accuracy or completeness of any information or data from sources outside of Morgan Stanley. It does not provide personalized investment advice and has been prepared without taking into account the financial situation and the individual goals of the people who receive it. The strategies and / or investments discussed in this article may not be suitable for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The suitability of a particular investment or strategy will depend on the individual investor’s situation and goals. Morgan Stanley at Work services are provided by Morgan Stanley Smith Barney LLC, SIPC Member, and its affiliates, all wholly owned subsidiaries of Morgan Stanley. 2021 Morgan Stanley Smith Barney LLC. SIPC member. CRC 3928253 11/21