It’s not unusual for David Lloyd to hear from plan members years after they’ve stopped working. In fact, that’s a big part of his job as Senior Investment and Retirement Consultant, Freedom Experience at Canada Life. “Most often, they’ve opened their latest financial statement, weren’t happy with their funds’ performance and panicked about their future. They often need reassurance that they’ll be alright,” says Lloyd.
Today’s realities of high inflation, economic uncertainty, market volatility and longer life expectancies all combine to elevate plan members’ concerns about what happens after they retire. In industry speak, that’s the decumulation phase of a retirement savings plan, when investment assets are converted into retirement income. Drawing money from their savings can be daunting for the average person. They perceive endless scenarios and uncertainties, making it complicated to figure out the best way to use their hard-earned savings, notes Lloyd. He outlines three essential steps to simplify decumulation and help plan members retire with confidence.
Making financial decisions
Only 25 percent of plan members who expect to retire in the next five to 10 years felt very knowledgeable about their finances, reports a 2022 Canada Life financial planning survey. As well, polling in November 2022 by the Financial Consumer Agency of Canada found 41 percent of all Canadian working adults worried that their savings won’t last in retirement. When it comes to offering a retirement savings plan, perhaps the most important role for plan sponsors is to work with advisors and providers to set a framework for confident decision-making. When people feel confident or comfortable making a decision, particularly a financial one, they are more likely to take action. “It’s about breaking down the walls to help them understand retirement planning,” states Lloyd. “When we simplify complex concepts, use clear communication and provide accessible education, people can navigate retirement planning with greater ease.” As well, outreach can be timelier. “As an industry, we can make decisions easier for members by giving them the right information at the right time, including for those who forgot to sign up for their company’s retirement plan or set their contribution levels at optimal amounts,” says Lloyd. “We need to find ways to get back to them.
That’s when education meets purpose and is most likely to influence positive decision-making or action.” Finally, plan members need to know they can get one-on-one, expert advice from a trusted source at any time, especially if they don’t have a personal financial advisor. “That means helping people at the right time and place, including after retirement,” says Lloyd.
Data matters
Data helps build comfort levels, which in turn drive decisions. But first, it’s up to advisors and providers to organize it into information that’s meaningful for both sponsors and members. Put another way, that information needs to communicate the “so-what” that will lead to action. For example, while it may seem obvious that pre-retirement withdrawals from savings will reduce retirement income, it can be helpful to show how much of an impact these withdrawals make.
This not only discourages plan members from taking money out, but it also helps persuade plan sponsors to choose a plan design that discourages withdrawals. Canada Life’s analysis found that members with withdrawal restrictions on their plan retire with 25 percent more in assets than those without restrictions. The data analysis also informed plan sponsors which group is the most impacted, which can guide them to take specific actions to support those members. Predictive behaviour analysis is on the near horizon, powered by artificial intelligence. For example, plan members checking accounts more often could signal they’re thinking about making withdrawals.
Products with purpose
Automatic plan features and retirement funds are two examples of purposeful products that simplify decisions for retirement savings and retirement income. For example, auto enrollment led to a 25 percent boost in member participation within one of Canada Life’s client’s plans. However, rules about auto enrollment vary by region and can be complex. But, since data shows it’s beneficial for both members and sponsors, providers are working to create clarity so more plan sponsors can offer automatic plan features. Target date funds are another area of focus. They help members invest in an age-appropriate portfolio and be more confident in their investment choices. However, as members approach the decumulation stage, individual circumstances could mean that the target date fund may no longer be the best avenue. Plan sponsors and their advisors can ask their provider about retirement-focused offerings.
For example, in June this year, Canada Life launched three retirement funds (conservative, moderate and balanced) that plan members can pre-select before retirement. A specialized risk-reduction pool provides insurance-like protection against extreme market volatility, and asset allocations—for example, in real estate markets—guard against inflation over the long term. At the same time, the funds are designed to provide the potential for modest growth throughout retirement. When you consider that members today may be able to enjoy retirement for 30 or more years, retirement funds can be key to confident decision-making and peace of mind during the golden years.
This article is brought to you by Canada Life, a Platinum Preferred Solutions Provider for members of Benefits Alliance and their clients.