Increasing longevity in the U.S. and elsewhere is the biggest retirement challenge for plan executives, money managers and, especially, individuals who increasingly are in charge of saving for their own retirement, said speakers at Pensions & Investments’ West Coast Defined Contribution Conference.
Investors should consider the “possibilities of older people, not just in the United States but around the world, as a sort of marketable economic opportunity,” said Paul Irving, chairman at the Milken Institute Center for the Future of Aging. Advances in medicine, sanitation and safety are raising life expectancies and people want to remain in the workforce longer, he said at the conference, held Oct. 18-20 in San Francisco.
The “intersection of demographics and the possibilities of innovation of products and services” for older adults is a “powerful opportunity,” Mr. Irving said.
Put another way, if the longevity economy — the economic activity of adults 50 years and older, and the products and services used by them — were its own country, it would have the third-largest economy in the world with a gross domestic product of $7.1 trillion, Mr. Irving said.
Keynote speaker Moshe A. Milevsky, executive director of the Individual Finance and Insurance Divisions Center and associate professor at York University, Toronto, argued that the “volatility of longevity is on the same order of magnitude as the stock market. You need a risk management strategy for both.”
Instructing attendees on the need to merge life annuities with lifecycle funds, Mr. Milevsky explained: “Twenty-first century asset allocation is going to have to change as we grapple with the awareness that stocks and bonds aren’t going to be enough to create an outcome that is predictable and sustainable for employees for the rest of their life.”
Mr. Milevsky spent most of his remarks focused on the benefits of considering the use of lifetime income options, especially deferred-income annuities, as insurance for longevity.
“Low probability, high risk events” — like car accidents and floods in your basement — and living more than 80 years “are the things you insure for,” he said.
Increasing longevity, rising health-care and long-term care costs are putting pressure on people’s retirement security, said Aliya Wong, executive director of retirement policy at the U.S. Chamber of Commerce.
Ms Wong said she expects the definition of retirement security will broaden to include “overall financial well-being, health-care costs, and longevity concerns” and that plan executives and service providers will take it upon themselves to find solutions. While Congress hasn’t been overly active on retirement issues, there have been more peer to peer conversations among plan executives. Plan executives want to know what others are doing and “don’t want to wait for Washington to fix their problems,” she said.
Longevity issues were raised throughout a number of panel discussions.
Bluford W. Birdsong, vice president, participant engagement-marketing at Prudential Retirement, said one of the reasons people fail to address their financial needs for retirement is a failure to identify with their older selves. Helping them to do so can increase participation in a retirement plan, Mr. Birdsong said.
Speaking on the same panel, Roger W. Gray, director, institutional sales manager, retirement and benefit plan services at Bank of America Merrill Lynch, said one of the firm’s manufacturing clients, which he did not identify, was concerned about the work becoming too challenging for its aging employees.
Setting these employees’ up for financial wellness so they feel secure enough to retire, not only helps the employees, but also keeps the company’s health-care, workers’ compensation and liability costs down, he said.
A holistic approach
The overarching theme of Messrs. Birdsong and Gray’s panel — going beyond retirement savings and taking a holistic view of employees’ financial wellness — was reinforced throughout the conference.
Employer-sponsored financial wellness programs, once viewed as “nice to have,” are now a “must have,” said Mr. Gray. Speaking on the same panel, Michelle A. Ryan, investments and benefits program manager at Los Alamos National Laboratory, said the three catalysts for its financial wellness boot camp — held for the first time last year — were the earlier closing, in 2006, of its defined benefit plan; the 2013 government shutdown, which drove home the point to employees the need to have emergency funds as well as retirement savings; and LANL Director Charlie McMillan’s campaign to make the lab a great place to work.
Along with increasing their 401(k) contributions and changing asset allocations, wellness program attendees took other steps to improve their personal finances, such as budgeting and managing their debt.
LANL’s highly educated workforce is well-acquainted with student loan debt, she said.
“Education is not free. People are coming into the laboratory with pretty significant student loans,” Ms. Ryan said. LANL recognizes its employees must deal with this debt as well. It’s not just about saving for retirement.
To keep the momentum going, Ms. Ryan said she is looking at offering another boot camp in 2016, likely based on topics employees suggest.
One size doesn’t fit all
The argument that there is no one-size-fits-all solution for improving retirement outcomes came up in panels on investment menu customization and participant education.
As automatic features like auto-enrollment become more common indefined contribution plans, participant education and communication can become more targeted and segmented, focusing on retirement readiness rather than, say, how to sign up for a 401(k), plan executives and service providers said during a panel on participant education.
Meenu Natarajan, retirement programs manager, global total rewards, at Franklin Templeton (BEN) Investments (BEN), said e-mails directed to a particular group of employees, such as new hires, seem to have greater resonance than mass e-mails sent to all employees.
On a panel discussing investment menu customization, Anthony Tomich, head of pension investments at Farmers Insurance Group, said the company shifted to a simplified investment lineup in its roughly $2.3 billion DC plan with a few white-label funds, off-the-shelf target-date funds, and a brokerage window, because employees were confused by the old mutual fund dominant lineup.