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Americans aged 65 or more rose to 19%
in 2014 from 12% in 1994 and that, for
the group 65 through 69, participation
had increased to 32% in 2014 from
22% in 1994. In both age groups, the
bureau projected further gains of a few
percentage points by 2024.
Those efforts are admirable, but the
gap between intentions and results is
significant for the 40 million Americans
over 65 in 2017. " Planning to work longer
is great, but having a backup plan is essential,
too, and something we talk to workers
about, " says Roy. " We ask, 'How would
you adjust financially if you have to leave
the workforce three years early?' Workers
lose some of their highest earning and
saving years, start tapping their nest egg
earlier and tend to take Social Security at a
reduced amount. The combination of those
three things, assuming that the retiree or
someone else in the household has a high
life expectancy, can derail an otherwise
entirely successful retirement outcome. "
Ultimately, in a defined contribution
world, employees-to-retirees have to
manage their own retirements. But it is
complicated. " They can't know the time
horizon on the back side of retirement
and how big their liabilities [will be]. But
that's what determines how to invest,
how much they can spend for how long
and whether they can leave a bequest, "
says Stephen Bozeman, target-date fund
(TDF) product manager at T. Rowe Price
Group in Baltimore. " There are a lot of
trade-offs, but people likely don't know
what those are and the impact of the decisions
they can make. "
Employers Mitigating Risk
What role can employers play in sorting
out all of these opportunities and decisions
that mitigate longevity risk? After
all, in many cases, they themselves
have imposed some of the complexity-
through their plan design, education
programs and product selection.
A starting point is to manage the flow
of retiring workers: Research by Willis
Towers Watson shows that while 80% of
" We ask, 'How would you adjust
financially if you have to leave
the workforce three years early?' "
employers consider older workers to be
crucial to their success, only a quarter
believe their firm manages the timing of
retirements effectively.
" Employers don't have much insight
into how and when people want to leave, "
notes Alan Glickstein, managing director
of retirement in the consulting firm's
Scottsdale office. " Some people want to
retire early but feel stuck in their job for
economic reasons, and if it weren't for
that they would be on their way. Others
want to keep working. Everyone has a
different idea of the right retirement age. "
" There has been a push for 'Save 10%'
as a message to the marketplace, but we
emphasize the idea of saving something
more like 15%, particularly in the abovemedian
income range, for what do you do
when things don't go according to plan or
[your] time frame is extended? " Roy says.
Ireland suggests prompting individuals
to face key questions such as this in
their late 50s or early 60s, when they have
adequate bandwidth for an informed decision.
One area to tackle early is the optimal
time to claim Social Security benefits.
" There are spikes in the number
of people taking Social Security at
age 62, then a smaller number at 65,
and a third smaller number at 70, "
says Jim Tzitzouris, director of multiasset
research, also at T. Rowe Price in
Baltimore. " What we took from all of this
was that people are not choosing to retire
when they were prepared to but instead
perceive that entitlement guidelines are
some sort of advice. "
Alicia Munnell, director of the
Center for Retirement Research (CRR)
at Boston College, pointed out, in a
2015 research report, " Monthly Social
Security benefits claimed at age 70 are
76% higher than those claimed at 62.
The fact that people are always amazed
when presented with this information
suggests that a major educational initiative
may be warranted. "
Most observers spoke in favor of
adding in-plan lifetime income to defined
contribution plans, in the form of qualified
longevity annuity contracts (QLACs)-
even as the plan default. " QLACs can
guard against the fear that everyone has:
running out of money when you're old,
and then you're done, " Bozeman says.
" Having it there as a safety net is straightforward
and relatively inexpensive, and
having control over your assets from the
point of retirement to when that kicks in
makes sense. But we're all still working on
what that experience, or some other tailrisk
protection, would look like. "
" Sometimes you have to go through
the dark to get to the light, and there is a
lot of complexity to work through. But I'm
optimistic, " Glickstein says. " If I knew the
day I was going to die, that would help a
lot-that is the fundamental challenge.
Until we can get people to embrace annuities-the
vehicle that could solve that
challenge-we need to provide the knowledge
that most employees are not going to
develop on their own. " -John Keefe
KEY POINTS
* Living longer requires greater
retirement savings, and working
longer is one option toward
mitigating longevity risk in
retirement.
* Individuals need to plan for
longevity in their 50s, when they
have adequate bandwidth to
make informed decisions and
still time to create a safety net.
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