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Get Real with Clients About Retirement Savings Plans

By Grace Williams December 9, 2016

It’s been obvious for years now that, on average, Americans remain woefully underprepared to fund their retirements. Yet the so-called “trophy kid” Millennial generation ranks having a robust retirement fund high on their list, according to a newly-released survey by Natixis Global Asset Management. Unfortunately, barriers to entry – including life expenses, student loan debt and employers not offering retirement plans – make it difficult for American workers across the generations to save enough, according to the survey.

The survey, released in late November, asked 951 American workers ages 18 to 51-plus about their views on retirement saving. Natixis says 69% of Millennial workers want mandatory contributions to a retirement savings plan. Moreover, 82% say employers should be required to offer plans, and 76% favored a mandatory employer match program.

Comparatively, 55% of Baby Boomers say individuals should be required to contribute, and 66% say employers should match employee contributions. Meanwhile, 77% of Gen X respondents say employers should be required to offer retirement plans.

What’s clear is that workers understand the need for viable retirement contribution vehicles, yet their enthusiasm wanes after that. Workers on average expect to be retired for around 22 years, and say they would need about $878,200 in funds. Despite that, they are a paltry 24% along the way, having only saved $208,338 towards their goal.

“There is an awareness that they will have at least 22 years without work income,” says Ed Farrington of Natixis in an interview with FA-IQ. “Yet, we still see 41% contributing between one and five percent. That’s not enough to offset [expenses].”

Some respondents are less concerned about retirement funding due to other vehicles they have in place. Natixis reports that 67% of the survey respondents expect Social Security benefits to be available for them. But reliance on Social Security is a dangerous move, according to Dr. Brigitte Madrian, commission member of the Bipartisan Policy Center. Madrian says that although some form of Social Security will probably be available to everyone, consumers can expect to see a cut of up to 25% in benefits if the program continues along the same path without any reform.

Aside from their workplace savings and Social Security, 69% say they would tap into their personal savings, 36% cite personal investments, and 33% say they would rely on the retirement savings of a partner or spouse.

John Salter

Even so, there are discrepancies. The commonly-presumed $1 million on average that Baby Boomers expect to need for retirement is low, according to Dr. John Salter, a certified financial planner and professor at Texas Tech, because it doesn’t account for inflation. Also dubious, according Salter, are unaccounted-for “wild card” issues such as the rising cost of healthcare and increased life expectancy.

“One of the leading causes of bankruptcy is healthcare services that come up as emergencies,” says Salter. Because there is no crystal ball to predict life expectancy, Salter suggests consumers “contribute to longevity.”

When it’s time to sit and discuss options, Chris Schaefer, head of the Retirement Plan Practice Group at MV Financial, a wealth management firm based in Bethesda, Md. managing $650 million, says the challenge for advisors is getting clients to pull the trigger on a plan. Noting that prospective clients almost always agree they need to save for retirement, he says they tend to put off actually committing to do so.

“Unfortunately, it’s a human nature [thing],” he says. “[They think] everything will be OK and work out for me; everyone else has to worry about themselves.”

The good news is that potential clients are still open to education, guidance and suggestion. Natixis found that respondents would welcome more education, incentives to contribute and assistance with other pressing financial issues, such as student loan debt.

One solution to the barrier of entry, according to Dr. Madrian, would be for employers to offer retirement savings from day one.

“If people want to save for retirement, it is easier,” she says. “If they get used to living on a certain amount, it looks like a loss if they are giving up some income they are used to.”

In addition, Dr. Madrian believes it’s up to advisors to prove their value and worth to clients, especially given highly-publicized “bad apples” who have made consumers justifiably uneasy about putting their financial future into the hands of financial advisors.

“The fact that you have good apples and bad apples floating together makes some people wary of going after financial advice at all,” she says. “The challenge for advisors is weeding out bad advisors and communicating the value of financial advice in ways clients can understand.”