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Redefining the Retirement Landscape

2021-12-14

Retirement expectations in the wake of COVID-19 are evolving and may be at odds with reality, according to the inaugural Retirement Survey & Insights Report from Goldman Sachs Asset Management. 

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This exchange is a common sense and I am also nathan- a senior strategist and Goldman Sachs Research today, going to discuss the topic that affects all of US retirement, we'll talk about how we can save enough for retirement when we can retire and how- should spend down our savings once more in retirement some answers and all this I joined by MIKE Moran attention strategists implements acts asset management MIKE welcome to the programme, thanks for our meals, MIKE. You and your team just released JOR Inaugural Retirement survey, which interviewed. Working and retired individuals across ages and generations, just to that point, make it it would be useful to understand who was the pool that party debated in the survey, so we, forbade over twelve hundred participants, and we intentionally broke that up between currently working purchase and those in retirement
part of the reason we wanted to do that is we wanted to see what lessons could be learned from those who have already gone through retirement so currently working employees there, saving for retirement they're trying to think about what am I gonna retire? How much do I need to retire, but they haven't gone through it yet? Well, let's, talk to the people of actually gone through it and say what was your expectation and now how was it we played out in retirement. So a lot of the focus of the survey was looking at participants and conduct comparing and contrasting. Those currently work neighbours as those who are already in retirement energy target. A certain age group assert above income. We tried to come up as with most surveys with the diverse set of participants. So when you talk about age groups, we have participants like, for example, in the currently working group that go across genetics. Milan, else Genji. We try to think about different industry. So some there were more blue collar, some that were more white collar, so really trying to come up with the diverse population, for both cover
So one of the surveys, key findings- was that individuals were retiring earlier than expected. So what's driving that soils and I often think that the narrative behind retirement is that individuals will have to work longer than they expect to in order to save enough to fund their retirement, but as you into They are survey found that more than half of those currently in retirement actually retired earlier than they expected with most retiring between the ages of sixteen sixty four now oftentimes that wasn't particulars because of their choice. the primary reason that lead participants to retire when they did was health related, while in some case is there a job was no longer available orbs. They simply no longer wanted to work. So, while some purchase since may think they will work longer or may need to work longer in order to save enough to retire the reality, is they may not be able to do so and in many cases that may be due to health issues. Now this was one of the disk,
next. We saw in the survey between those currently working and those that are already in retirement. Those currently working said the number one catalyst for when they think they will retire will be having what they believe is enough money to fund their retirement for- was already in retirement. The number one reason for when they actually did decide to retire was related to health issues. So can people do about that? If you end up in retirement before you have enough funding, I think there are some we'll take a ways and action items for individuals based on that result in the first is that as they prepare for it Ireland. They should start to think about saving earlier and the other career may not be as long as they think it will be, so they need to start saving as soon as possible. Also allows them to take advantage of the benefits of compounding returns it also means the amount of time they spend in retirement may be longer than anticipated. So there next day may be larger than what they think it needs to be against, are used for taking a more aggressive stance and saving for retirement, and so on,
are some of the key hurdles that can impact people's ability to save for retirement fortunately out- and there are a lot of them in our survey- really kind of late- that out, our survey indicated that paying off debt and that could be student loans or credit card that saving a child's college, education or times bent down to be workforce which often times span taking care of a young child. Perhaps an elderly family member, all of We can have a negative impact on saving for retirement now many These hurdles have had a more meaningful impact on them, currently working than those that are already in retirement, and I think that really speak. To the transition we ve seen in the retirement space from a defined benefit type of retirement system to define contract? she retired system, with more individual responsibility for saving for retirement. It also about the changing nature of retirement planning and how it really has to integrate all of these other financial aspects of an individual's life right and so
half of all of those burdens and considerations. We are now on the cusp of rising rates. We have a lot inflation and the economy, then we ve had recently. These are all key worries for retirees. So what did a survey reveal about retirees top concerns when it is diminishing their finances where those among them so you're right, Alison inflation is always a key concern for retirees, because the loss of purchasing power is one of the key risks that we all face in retirement it certainly is an even greater concern today, just given the reality that working inflation today that we haven't seen in the past several decades, The survey didn't indicate that inflation was one of the top three concerns that many retirees are facing today. Concerns that retire recited were healthcare related and health care typically comprises. A higher percentage of spending. For those retirement verses, those that are working at another concerns related to potential reductions in social security benefits. Now, that's not a new concern, but every year that
It was by that we come closer and closer to potentially seeing so security benefits being reduced that just raise it in the minds of concerns are retirees. and you mentioned this transition from traditional pensions to define contribution plans. It's been one of the defining features of their retirement landscape over the last couple of decades and employs just have much more responsibility for managing their own retirement outcomes, but the same time? Participants need to manage other financial needs. You know they need to pay off student loans, as you just talked about the need to build up the emergency savings they need to save for their kids college education, so all of these factors. What steps our today's retirees taking to ensure a comfortable retirement? What are they doing? Jobs, or even before that else? And I would say everything you just said real, highlights that retirement planning can't be done in isolation, and it must take into account all these other financial obligations that participants are facing partition.
We need to make sure they can continue to say for retirement, even as they're paying off student loans are dealing with an unexpected expense. It also what's that employers must evolve retirement programmes so that their participants can overcome some of these barriers to retirement, but in terms of space, big steps. No one step retirees are doing today or looking at today is try to find solutions that will allow them to generate consistent and stable income in retirement. We ve talked about the train. mission from the fine benefit to define contribution. Many Retirees will not be receiving a monthly check in retirement from a defined benefit pension plan and are serving indicated that the number one concern for retirees, as They entered retirement was leaving a steady paycheck. So what tat many are taking is looking for ways to take their savings and turn it into a consistent and stable income and retirement in many ways, Retreating that steady paycheck they left behind. But might let me
you because in twenty nineteen we have the passage of the secure act which made it easier for companies to include anew at ease in the retirement offerings they were offering to their employees. Is that away that employees can achieve stable income immaterial it it could be, and so sheer point. Allison secure ACT provided a safe harbour for employers to include a new. It is made it easier for them to include a new at ease in their retirement plan line up first employees. Participants in the plan they may ultimately say of my employer, provides an annuity. I may take that option, but a new- he's for some participants are confusing their complex and we may or may not see that uptake happen. I think what a lot of employers are looking at and really the industry as a whole is trying developed both. What I'll call guarantee and non guaranteed lifetime income. Vehicles. So this way as a participant, if I want that guaranteed income stream from an annuity that may be available, but if I don't is there another option that can be created? That will
provide me with that consistent and stable income that I want, but outside of an annuity type structure, so I always understood that annuities were something to avoid. I mean so. Are you saying that is not always the case? I think it's like anything in life, there's no one size fits all answer. It depends on what the individual the participant wants if they want a guaranteed income stream and they feel more comfortable, maybe not managing their own assets. Writing in new. It is in many ways are an insurance products, so your handing over capital in getting a stream of payments in the future. If that endeavour, it was not comfortable managing their own assets. The annuity may be the right answer for them, for us if I may say you know what they're comfortable managing their assets, they may want to try to earn a higher return them, what they could get from that insurance products, in early may not be the answer, but that's why from an organizational perspective. I think a lot of organizations are saying what are sort of guaranteed options that we can put in a plan and what are some non guaranteed options that could generate lifetime income or retirement income stream for my participants
and we know that individuals take different approaches towards retirement, why to this end a real about gender differences, or did it would be any so I did reveal a few differences in a few things. I'd say jumped out in the survey first, with respect to the timing of retirement working women play and to work longer than their male colleagues, but among the retiree cohort a greater percentage of women than men retired earlier than planned. So we see differences in the expected, an actual timing retirement across genders. In terms of, actually managing retirement finances, women were less comfortable than men in assessing their retirement needs and a greater percentage of women tend to feel that they are behind schedule with retirement savings. So some of these gender differences really highlight that plant participants are diverse and they have different needs. So from a sponsor perspective, They need to ensure that plane, design and retirement services can accommodate a wide range of participant needs, and what about different?
His across generations. Did you see differences between eugenics? millennials and Genji. There were some very interesting findings with respect to different age cohorts and, in particular younger workers. Those just entering their workforce, ten I believe they will be able to retire younger than their older counterpart. So, according to our survey, twenty five per cent of GNP workers plan to retire before aged fifty five first, is only seventeen percent for millennials and less than ten percent for generics and about thirty percent of hers under the age of forty believe they will need sixty percent or less of their pre retirement income in retirement and that compares to eighty percent of pre retirement income in the general cohort. So I think what The key take a ways, maybe that younger workers may need to adjust some other assumptions when it comes to retirement planning in future. Spending I M is that just like useful optimism here could be of a bit of youthful optimism. Again, if we think about that transition from genetics
Niels Genji know as we go down aid cohort, you see, participants adjusting, I miss Leary Justin, but having a transition to a later retirement age or sing, I'm going to need more money to spend your retirement, so it could be youthful optimism and then, as they transition to the career and three different age brackets, they reset their expectations. And I wonder also if there is some sense that younger generations feel like they need less to retire on it could and I think a lot of this is to be determined and some of it. You know, ties also into the current environment we have today where we have a lot of organizations with remote work. We have some participants, some younger workers who base glancing. I liked the flexibility of not having to go to an office every day or only work a few days a week, and maybe I want transition that later. In my life, to an early retirements. I will see how that develops law. On that point, I mean obviously so many challenges as we're thinking about retirement, but one of them
challenges that recently we faced as a pandemic, so maybe a level of a more and how the pandemic has shaped people's perspectives around retirement here and I think what look at the survey results, the impact has really varied so about thirty percent of currently working respondents in our survey indicated that Cove it has pushed out their time line in terms of retirement by at least a year, and in some cases that was- several years. In addition, I would say many of the survey respondents indicated that, because of covert, they had to increase their car dead or they had to draw down their emergency saving. So there were finally, some negative implications from covered with respect to retire replanting buttons, cases there were positive impacts from covered so, for example, for men, the top two financial impacts of covert that they cited where their ability to increase their retirement savings, as well as their emergency savings. So there were negative implications, but there were also some positive as well. Are there
steps that companies can take to improve retirement outcomes for their employees. Given all of these factors, so one of the most interesting findings that I thought in the survey Allison was that both currently working individuals, as well as retirees indicated that their employer answered retirement programmes where their most use source for retirement education. So these important benefits for employees for plan sponsors having a robust retirement program that integrates other financial obligations and accommodates a diverse workforce with varied plant needs. This is not a nice to have. This is a need to have say this is especially true in today's world, with unemployment so low and a war for talent raging in many industries, so offering new services are expanding. Existing ones in a retirement programme is an important value driver for many organizations and a key way to help attract and retain talent. So, given on this, what is the future of our it looked like will evolve. I think when we think about
retirement programmes they had to evolve from being retirement plans to retirement programmes, so as opposed to sponsor, accompany, saying here's your far away a plan. Here's our line up. Here's your match That's really all we're doing that has to over into a more holistic retirement program that tries to help employees manage other financial things like student loans? Like him? when she savings that also potentially tries to be more tailored for that individuals. Experience right, everyone has a different need and allow those needs we highlighted in the survey are driven by gender could be driven by age. May could just be driven by other factors that are unique to that participant. So we need to make these programmes more holistic that potentially provide a good our experience for the participant in helping them through that retirement journey. Have you seen any signs of that type of evolution is starting to take place. I think we're out,
really starting to see that in part of it comes from just looking at the products and services that the financial services industry is developing. In that ranges, everything from managed accounts too, Financial wellness programmes again, a lot of this- is becoming more embedded in the human resources and retirement programmes of a number of different organisations may, and that's it. Your hand in hand with again, as you said, this is an incentive and a tool for companies to use to attract talents. Others even more pressure to pursue these. It's a benefit for employees and especially in a world like today, with unemployment, so low and this war for talent. What else can we providing our employees that hopefully attracts them, hopefully track future employees, but then also allows us to retain them, and so this is all part of the value proposition. That organizations are looking at make. Thank you for joint. Yes, and you shedding light on this topic. That is very important to all of us, thanks for having else that lose
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Transcript generated on 2021-12-14.