This article, the first in a two-part series, discusses the importance of preparing for retirement. Extensive research shows workers are struggling with the perceived complexities.
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A move away from defined benefit (DB) and toward defined contribution (DC) plans has shifted the onus of retirement readiness away from the employer and on to the employee. The earlier in their working life an individual starts to plan for retirement, the better.
Insures have a role to play by surveying the workforce and assisting in providing education, tools, and support to help individuals achieve financial readiness. Governments also play a role by providing basic social security safety plans and legislating when people are eligible for lifetime payments.
In the US, over 30 million boomers born between 1959 to 1964 will soon turn 65, marking the "largest and final cohort" of that generation entering retirement, according to a new report from the Alliance for Lifetime Income's Retirement Income Institute.
Peak boomers entered the workforce just as retirement plans shifted away from DB plans (i.e., pensions), which were employer sponsored and generally stable, toward DC pensions (e.g., 401(k) plans in the US), which rely on workers to pay into them.
As pension schemes continue to evolve around the world, the need for workers to think about their finances in retirement and actively plan for life after work has increased.
Many financial institutions, such as Fidelity and Bank of Montreal, as well as insurers Allianz Life, Principal Financial, Prudential Financial, and Max Life, among others, conduct surveys to assess customers鈥 retirement readiness.
The Fidelity Global Retirement Survey conducted in 2020 assessed the retirement readiness of several countries, including the US, the UK, Japan, Canada, and Germany. Common issues with retirement readiness identified across countries included:
A Fidelity Global Sentiment Survey conducted in 2023 examined the evolution of attitudes and actions of working adults around the world in four distinct areas:
Fidelity identifies four common domains of financial wellness, no matter where employees are located across the globe, including:
Workers across all age groups and regions indicated they find the retirement planning process complicated. People do not have a clear understanding of their personal retirement saving requirements or how to measure the gap between what they will have and what they will need.
The Fidelity survey pointed out that people need to consider what sort of lifestyle they want in retirement. The key components of their preretirement plan are to raise savings, review the asset mix, and revisit retirement planning. The findings highlight an opportunity for employers and pension providers to help educate the workforce about retirement savings options.
Insurers also have an opportunity to provide tools and products to help people plan for retirement. Customers鈥 current strategies for managing retirement include cutting discretionary and obligatory expenses, working part-time, and an unrealistically relying on social security. Insurers can help customers become more proactive in achieving retirement goals by giving them the tools to become more financially literate.
Insurers regularly conduct surveys to estimate how much adults will need to live a comfortable retirement. The figures vary, yet the overall picture seems to indicate many societies are not well prepared.
Future retirees are overwhelmed with forecasts of how much they will need to save. A survey by Northwestern Mutual, titled Planning & Progress Study 2024, found that US adults believe they need $1.46 million for a comfortable retirement.
In another survey, Prudential Financial鈥檚 2024 Pulse of the American Retiree Survey found that those over 55 are the first generation to confront retirement without DB and full security benefits. Those called 鈥渟ilver squatters鈥 will rely more on family for housing and financial support. Inflation and the cost-of-living crisis have worsened the situation, upending many retirement plans.
Women face acute retirement challenges, including the gender pay gap and living longer than men. In addition, assuming the major share of responsibility for childcare often results in having fewer working years to contribute to their savings.
Retirement paths are more diverse than in the past. While some people want to retire earlier, others plan to work reduced hours, and still others want to continue working, albeit in new endeavors. In other words, one size does not fit all. In addition, people can be forced to retire earlier than anticipated due to their or their spouse鈥檚 health issues or other complicating factors.
Social security plans in different countries vary widely. The age at which people are eligible for these plans continues to rise, with additional age raises coming. It may not be possible for some people to work to these new retirement ages, depending on their occupation and health status.
Examples of recent regional developments related to social security include the following:
The UK, Canada, and Singapore are three examples of countries where governments are taking an active role in helping people plan for retirement.
Part 2 of this article series examines how insurers are helping people plan for their retirement. It discusses designing applications, dashboards, and group life and individual life plans with guaranteed income for life. It also highlights the need for flexibility in product design and the importance of incorporating value-added services, including health components and options for long-term care.
