When It Comes to Planning for Retirement, Participants Want to Hit the Easy Button
According to J.P. Morgan’s 2021 Defined Contribution Plan Participant Survey findings, more than half of the 1,281 respondents indicate they:
Are presented with more plan information than they can absorb.
Don’t read investment information provided to them.
Are willing to spend time planning for retirement but just don’t know where to start.
Nearly three-fourths of participants under 30 think employers should provide access to financial professionals and coaching to help them. Even more telling, 62% wish they could push an “easy button” and completely turn over retirement planning to someone else. This figure is up from 55% in 2016.
What’s fueling these worrisome trends? Perhaps the added complexity of living during a global pandemic has left workers less time and energy to focus on managing retirement planning. Moreover, 24/7 financial reporting on every market twist and turn may make navigating financial landscapes even more daunting. With seemingly endless media coverage of bitcoin surges and day trader-generated run-ups on stocks like GameStop — more may have come to believe investment decisions are simply best left to professionals.
Financial wellness is arguably a “must-have” benefit for plan sponsors and participants alike. A well-designed financial wellness program provides investing information and guidance for individuals when they are making important financial decisions. Most financial wellness plans include online investing resources to help participants learn about the investments offered in their retirement accounts and financial worksheets and calculators to help understand how much money will need to be invested in order to reach specific retirement goals. For those who need more help, there is often an option to meet with an investment representative to get individual guidance.
For participants who are looking for the easy button and prefer to have their investments selected by professionals, target date funds (TDFs) are a popular choice. TDFs offer a group of investments based on the number of years before a participant retires. For younger investors, a portfolio will typically include a large percentage of mutual funds and exchange traded funds which invest in the stock markets. These stock investments are likely to generate significant growth over time, though they do come with some risk. Younger investors will likely also have a small percentage of investments, including bonds and other more secure investments which are unlikely to generate a lot of growth.
As an investor gets closer to retirement age, the mix of investments in a TDF shifts from the riskier stock-based investments to the more secure investments. The idea behind the shift (called the glidepath) to more secure investments is younger investors can afford to take more risks because they have many years to make up for potential losses in the short term. Older investors who are likely to need their money sooner, will be less able to recover from a significant decline in investment value.
Recognizing age is not the only factor in determining how much risk is appropriate for an investor, TDFs are available with multiple glidepaths which account for an investor’s risk tolerance. Often an age-based TDF will offer aggressive, moderate, and conservative options. This allows participants to enjoy the simplification of retirement plan decision-making while maintaining more control over their level of investment risk – all within a single TDF.
A TDF with multiple glidepaths solves the “once-size-fits-all” limitations of traditional TDFs. Participants simply select the closest year in which they expect to retire and then choose the glidepath which most closely aligns with their personal risk tolerance — as well as the amount of risk needed to accomplish their retirement goals.
Achieving financial success can be tricky, which is why KerberRose Retirement Plan Services takes a personalized approach to determine the path for each client. Start a conversation with a Trusted Retirement Advisor today.
Sources:
https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/retirement-insights/RI-PPSF-21.pdf