This is Part 4 in our coverage of the 2012 DC Plan Summit, held in Mont Tremblant, Que.
Read Part 2: Current trends in DC plan governance
Read Part 3: Investment insights for DC plans
Many plan members are eager and excited to retire, but they may not have a personal retirement plan. Three speakers at the 2012 DC Plan Summit explored what it takes to get members engaged in retirement planning and what opportunities exist for plan sponsors to help them.
“I have become convinced that envisioning retirement is the single most critical factor to a successful retirement,” said Peter Drake, vice-president, retirement and economic research, with Fidelity Investments in Toronto.
Why? Because the kind of retirement that an employee envisions can have a huge effect on the kind of financial planning he or she needs to do for retirement.
The problem for plan sponsors is that getting people to envision their retirement is very difficult. “Most of us are lousy at it,” Drake admitted.
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Members also aren’t very good at dealing with market volatility. Recent research from Fidelity Investments shows that 49% of respondents said they were not going to invest in anything but safe investments for a long time. Drake said members need help understanding that safe vehicles will not generate the same kinds of returns, so members might need to change their retirement plan to accommodate their desire to reduce exposure to volatility.
What can plan sponsors do? Drake said they must encourage members to actually design a retirement income plan.
“They need to go home and track what their essential and discretionary expenses will be,” he said, adding that they must also consider what healthcare costs they can anticipate or should prepare for, as well as how long they might expect to live. Since this quickly becomes complicated, Drake advised sponsors to use interactive planning tools that can incorporate all retirement assets into the financial plan.
Idan Shlesinger, managing partner, defined contribution and savings plans, with Morneau Shepell in Toronto, had additional advice for plan sponsors on how to get members planning for their retirement. He said members must ask themselves three questions: What do I have now? What do I want for my retirement? And what might happen?
“Answering these detailed questions can be difficult,” he acknowledged. “We should recognize that it’s not going to be precise and will evolve over time. But it’s better to get people into the process to create that first target and then let them come back often and refine it.”
Watch: Idan Shlesinger talks about retirement planning as a process
Plan sponsors can encourage members to update and revise their plan by communicating often, making the information available on multiple platforms (paper, Web, mobile) and reminding employees about their employee assistance program (EAP).
“Most EAPs include financial planning and financial counselling, which is provided by independent, licensed financial planners who can help members with not just their investments but [also] their full-blown retirement planning. It can help them understand the programs, understand investments [and] understand the choices in front of them,” he said.
Baby boomers approaching retirement may need help preparing for this transition, both financially and emotionally. Jennifer Gregory, vice-president, national accounts, with Great-West Life in Toronto, outlined several emotional stages commonly experienced by pre-retirees, beginning with vision.
“Employees need to have an idea of their anticipated retirement lifestyle, along with the desire to achieve it,” she said.
Even so, at three to five years pre-retirement, employees often experience hesitation—particularly if they’re uncertain about their retirement income adequacy—and may hold back from making important retirement decisions. Gregory advised overcoming this inertia by maximizing contributions, developing realistic budgets and paying down debt.
Watch: Jennifer Gregory explains why we need to speak to members’ emotions
Anxiety generally follows at one to three years pre-retirement. “Employees in this stage continue to seek tools to help them reduce debt, plan budgets and review their retirement income options,” Gregory noted. Many will also continue to rely on employer-provided information to make retirement planning choices.
When they’re within a year of retirement, employees are full of anticipation and excitement.
“Here, employees need to verify pension eligibility, think about estate planning, estimate an emergency fund, learn about income solutions and meet with an advisor,” Gregory suggested. Plan sponsors can help by inviting employees’ life partners to attend lifestyle and retirement planning sessions offered through their group plans.
“Investing in pre-retirees’ emotional and lifestyle planning can help foster an emotional connection to work, should they choose to phase in retirement or continue to work part-time,” Gregory observed. “Further, it demonstrates the company’s commitment to employees, which can aid [in] retention of the next generation of workers.”
Leigh Doyle is a freelance writer based in Toronto. leigh.doyle@gmail.com
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