Meredith Wolff Q1 By: Meredith Wolff

“With so much changing in the environment around retirement, what do you think are the three biggest trends in 401K investment? How should we prepare for and keep relevant with these trends?” 

Innovation is a function of new and better ways to approach challenges — looking beyond the tried and true and status quo. Solutions that give people the opportunity to replace their working income in retirement — for life — are the next evolution of planning and saving for defined contribution plans.

Among other approaches, evidence shows that these three approaches may help put people on track to replace their working income and sustain it throughout retirement:
1. A singular focus on retirement income
2. Early education on retiree healthcare costs
3. Social and behavioral science

1. A singular focus on retirement income
The idea of simply showing people their account balance offers neither the motivation nor insight required to become retirement ready. This is reinforced by the fact that more than half (56%) of people are not confident about knowing how much money they will need for retirement.1

People traditionally budget their expenses monthly based on their monthly income, and it should be no different in retirement. Showing them their projected retirement income compared to their income replacement goal can motivate them to save more. And how much they save is a key driver of retirement income success, with contributions of 10% or more of income potentially leading to income replacement of 106%.1

An experience that allows people to easily model how higher savings rates influence their outcome and gives them the opportunity to quickly implement changes can encourage them to save more.

2. Early education on retiree healthcare costs
Healthcare expenses are an important line item on a retirement budget. It’s estimated that the amount a household needs to cover 90% of healthcare expenses throughout retirement is $247,000 ($116,000 for a man and $131,000 for a woman).2

Retirement service providers need to offer tools and resources to help people estimate their expected healthcare cost at year one of retirement — and at specific ages — so they understand how much they can expect to pay. 

This type of solution can help the nearly two-thirds of people (64%) who are not confident about knowing how much money they will need to cover healthcare expenses in retirement.1

3.  Social and behavioral science
A proven approach to improving savings rates lies in behavioral science. As people consider how much they should save, a natural tendency is to wonder how much others in their peer group are saving. Social comparison begins at an early age. Whether it’s where a person falls on the grading bell curve or how fast they run a mile compared to those who are the same age and gender, people want to know where they fit in the mix. This also holds true when it comes to saving. With a tool that lets individuals compare themselves to top savers in their peer group — based on demographic factors like age, salary and gender — people tend to save more. Data from those who have used this type of planning tool correlates with savings rate increases of 25%.3

The opinions expressed here are solely those of the author, not Putnam Investments, Empower Retirement, Great-West Financial® or their subsidiaries, and are not intended as tax, legal or investment advice.

1 Empower Retirement, Lifetime Income Score V: Optimism and opportunity, March 2015
2 EBRI Retirement Confidence Survey, 2014
3 Internal review of Empower Retirement Web activity statistics, conducted May 2015

Meredith Wolff

Meredith Wolff is the Regional Sales Director at Empower Retirement. She is responsible for marketing Empower’s defined contribution solutions to large market plan sponsors, fostering new business development, and maintaining key relationships with Consultants, Registered Investment Advisors and Financial...

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