PLANSPONSOR - June/July 2019 - 12

Upfront
Greater
Longevity
Will Require
Plan Design
Changes
A 2018 Natixis report on the aging global
workforce points to Japan as a bellwether
for what other developed economies can
expect. In that country, 27% of people
are currently over the age of 65, and, by
2050, there will be 70 retirees for every
100 workers.
Ed Farrington, head of retirement at
Natixis, says the world should celebrate
medical advances and broad-based lifestyle
changes allowing more people to reach
older ages and remain healthy. But, he
says, when it comes to the topic of retirement
planning in an aging world, greater
longevity is a serious issue to confront.
" We're talking about retirement
systems that were built on the expectation
of having somewhere between 15 and 20
people living in retirement for every 100
workers. Seventy retirees per 100 workers
simply becomes unsustainable. "
Data from J.P. Morgan's " 2019 Guide
to Retirement " report indicates the U.S.
workforce is on a path much like Japan's.
The analysis shows that, for a healthy
couple retiring today at 65, the probability
of at least one of them living to 75 is 97%.
That percentage drops only to 90% when
the age is 80, and to 50% when it is 90.
Farrington and others note that,
aside from the challenge greater longevity
poses to individuals' savings, it also will
challenge nationwide systems, including
Social Security and Medicare. As a result,
employers, governments and individuals
must make adjustments now to ensure
these systems can fulfill their promises.
12 PLANSPONSOR.com June - July 2019
Sri Reddy, senior vice president
for retirement and income solutions at
Principal Financial, says Social Security
will still exist when Millennials reach
retirement, but policy adjustments must be
made for the system to remain viable, long
term. " Changes could include increasing
the retirement age to 70 or making a
greater portion of Social Security income
taxable, " Reddy says.
For their part, says Reddy, employers
can make changes today to help older
individuals continue working longer. This
could mean allowing for phased retirements,
or providing programs to help older
workers keep their skill sets current.
The experts agree that employers
can take immediate steps in their retirement
programs to address the challenge
of greater longevity. Some of the most
valuable steps to take today involve the
youngest workers. For example, to automatically
default new workers into a high
savings rate and to embrace automatic
deferral escalations and re-enrollments
can position people for a stable retirement.
" Implementing these automatic
features is one of the first and best
solutions for employers, " Farrington
says. " Auto-enrollment and auto-escalation
can help a lot, along with a welldesigned
defined contribution [DC] plan,
put together with strong incentives and
communication. If we can get workers
early in their career to save 10% of their
income or more, we'll end up in a much
better place. "
According to Aron Szapiro, director of
policy research at Morningstar, employers
should make it easier for workers to make
systematic withdrawals from defined
contribution plans, rather than only
permitting a lump-sum withdrawal.
" Having a system where you have
people take out lump sums is not a good
idea, " he says. " Any policy development
that could encourage structured withdrawals
and promote longevity insurance
could be really valuable. "
Farrington also points to the importance
of shorter-term financial stability as
a keystone to successful retirement planning.
Individuals must have sufficient
emergency savings, for example, before
retirement can become a realistic priority.
-Amanda Umpierrez
Art by Cleonique Hilsaca
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