Guaranteed Income Option Most Appealing to Younger Worker

 

May 14, 2012

(PLANSPONSOR.com) - Many American workers find it appealing to have a guaranteed income in retirement—the younger the employee, the greater the attraction.

 

The Hartford’s Guaranteed Retirement Income study finds that three out of five Americans (64%) say their employer’s 401(k) or other retirement plan does not allow them to turn their savings into guaranteed income in retirement or they are unsure if it does. Overall, 87% of respondents of all ages say they find it “very” or “somewhat” appealing to be able to turn at least a portion of their retirement savings into a guaranteed income.   

 

Ninety-five percent of workers younger than 30 say the same, as did 90% of respondents ages 30 to 39, 89% of those ages 40 to 49, 88% of those ages 50 to 59, and 77% of respondents age 60 and older.  

The Hartford’s study found some differences related to gender and income. Women (89%) have a greater preference for guaranteed retirement income than men (84%).  

 

The concept of guaranteed retirement income appeals most to those with a combined annual household income of $50,000 to $74,000. A total of 92% in that demographic would like their employer to offer a guaranteed income option compared to 87% of those earning $30,000 to $49,000, 86% earning less than $30,000, and 84% earning $75,000 or more.  

 

The Hartford’s study surveyed 2,500 Americans ages 18 and older.

 

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Younger Workers Look for Employers with Defined Benefit Plans






March 2012









According to the Retirement Attitudes Survey by Towers Watson, in 2009, 28% of workers younger than age 40 said a DB plan was their reason for accepting their job. This number more than doubled in 2011 to 63%. This number compares with a nine-percentage-point gain (19% to 28%) for younger employees at organizations that offer only a defined contribution (DC) plan.







Retirement plans have also become stronger retention tools among younger employees with a DB plan. Nearly three-fourths (72%) of these employees cite their retirement plan as a strong incentive to stay with their employer - nearly double the percentage (37%) in 2009, and twice the retention value reported by younger workers whose employers offer only a DC plan.










“Two factors are likely causing this change: The combination of a slow economic recovery and more older employees delaying retirement is making it increasingly difficult for younger employees to find jobs or advance in their careers,” said David Speier, a senior retirement consultant at Towers Watson. “As a result, young workers are clearly giving much more weight toward both employer retirement and healthcare benefits when making career and employment decisions.”

 

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Pension Spending Supports 38,518 Jobs, $4.9 billion in Economic Output in Missouri 
 

 

Washington, D.C., March 14, 2012 - A new economic analysis study finds that pension benefit expenditures provide critical economic stimulus to the Missouri economy, including $4.9 billion in total economic output.




Pensionomics 2012: Measuring the Economic Impact of Defined Benefit Pension Expenditures, reports the national economic impacts of public and private pension plans, as well as the impact of state and local plans on a state-­‐by-­‐state basis.

 

 

The study calculates that pension expenditures supported some 38,518 jobs in Missouri that paid $1.6 billion in income. Pension benefits accounted for some $4.9 billion in total economic output and $2.8 billion in value added in Missouri. These expenditures also supported some $640.1 million in tax revenue at the local, state, and federal levels.

 

In 2009, Missouri’s unemployment rate was 9.3%. The study finds that the 38,518 jobs supported by pension expenditures is significant, as it represents 1.3 percentage points in the state labor force in that year.

 

"Missouri retirees don’t put their pension checks in a drawer and forget about them," said Ilana Boivie, report author and NIRS economist. "They use it for daily living expenses, and to pay taxes. The money goes right back into the economy, which means financial stability for the retiree and economic growth for Missouri."

 

"Understanding the economic impact of pension spending is critical as our economy struggles to recover and create jobs," said Diane Oakley, NIRS executive director. "The secure monthly income provided by pensions can act as an ‘automatic stabilizer.’ Missouri retirees with a reliable pension check can continue spending on food, housing, and medicine even during tough economic times."

 

Oakley continued, "That isn’t necessarily the case for retirees relying on 401(k)-­‐type plans, who in 2009 experience big losses to their nest egg. These Americans are often forced to retreat from spending just when the economy needs stimulus."

 

The study also finds that that expenditures made from public pension benefits in 2009:

 

　

• Paid $3.3 billion in pension benefits to 149,001 retirees and beneficiaries in Missouri.

• Had large multiplier effects. Each taxpayer dollar invested in Missouri’s public pensions supported $5.43 in total economic   activity, while each dollar paid out in benefits supported $1.49 in economic activity.

• Impacted every industry in Missouri.

 

 

 

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Workers Would Trade Pay for Retirement Security






February 2012






According to a survey by Towers Watson, 55% of respondents said they are willing to pay a higher amount from each paycheck to ensure they have a guaranteed retirement. That compares to 46% two years ago. Half of respondents said they would trade a portion of their pay to ensure they have access to healthcare benefits if they retire before they are eligible for Medicare benefits, versus 40% in 2009.



More than half (53%) of those polled indicated they would be willing to trade a portion of their pay in return for more generous benefits.

 

This growing interest in retirement security is not limited to older workers; the survey found that some of the most dramatic changes in attitudes toward risk, rewards and security trade-offs have been among younger employees and those with a defined benefit (DB) plan. Among DB plan participants younger than 40, the number willing to pay for a guaranteed retirement benefit jumped by nearly 70%, from 39% in 2009 to 66% in 2011.




Younger DB plan participants (63%) are particularly concerned about a reduction in retirement benefits within the next two years. Employees are even more concerned about having to shoulder more financial responsibility for their healthcare costs. Nearly three-in-four employees (73%) are concerned about higher out-of-pocket health costs and copays over the next two years, compared with two-thirds (67%) in 2007.

 

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U.S. Workers’ Confidence in Retirement Grows

January 2012




(PLANSPONSOR.com) – U.S. employees’ confidence in their ability to retire comfortably rebounded last year from post-recessions lows. 

According to the Towers Watson Retirement Attitudes Survey, despite growing satisfaction with their financial situation and fewer employees reporting significant declines in retirement savings, many employees remain concerned and are taking steps to get their financial houses in order.

The Towers Watson survey found that the percentage of workers who said they were very or somewhat confident about having enough resources to live comfortably 15 years into retirement increased from 62% in 2010 to 68% last year. Workers, however, are less confident about living comfortably throughout retirement. Less than half (47%) of respondents said they were very or somewhat confident they will have enough resources to last 25 years into retirement. This compares with 40% who said they were very or somewhat confident in 2010.

The survey also found that fewer employees are experiencing significant declines in their pension and retirement savings – 47% in 2011 versus 55% in 2010 and 60% in 2009. Additionally, employee satisfaction with their household finances continued to improve, jumping from 33% in 2010 to 41% in 2011. Despite this upturn, three in five workers (59%) remain generally unsatisfied with their financial situation.

“As the economy shows periods of stable ground, employees are slowly beginning to be more optimistic about retirement,” said Kevin Wagner, a senior retirement consultant at Towers Watson. “However, the financial crisis was jolting to American workers. As a result, many employees are more financially conservative today and have a renewed interest in improving their financial decisions and planning and saving for retirement.” 

The survey also noted after two years of cutting back on daily spending, paying off debt and saving more for retirement, some respondents plan to take additional measures this year to get their financial houses in order. These steps include further cost cutting and a sharpened focus on retirement security.
 

According to the survey, the percentage of workers with defined benefit (DB) pension plans who are satisfied with their household finances jumped sharply in the past two years, from 29% to 49%. DB participants are more than twice as likely to feel “very confident” about the first 15 years of retirement and 2.5 times as likely to contemplate a 25-year retirement with confidence compared with workers with only a 401(k) plan. 

A larger percentage of younger workers (under age 40) were also satisfied with their household finances last year (47%) compared with 2009 (28%). However, nearly two in three (66%) of young workers said they will need to save much more in the future to achieve a comfortable level of retirement income. Moreover, the percentage of young workers who carefully reviewed their retirement plans increased by more than 40% between 2010 and 2011.

“While the depressed economy may have triggered some of these prudent behaviors, increased attention to retirement planning, especially for younger workers, can be a helpful step for employees to save for a secure retirement,” said Bill Daniels, a senior retirement consultant at Towers Watson. “This is an opportunity for employees to make positive strides for their future. It can also be an opportunity for employers to take advantage of emerging education and planning technologies to drive up appreciation of benefits programs.”

Other survey findings include:

•   Nearly four in 10 respondents (39%) plan to delay retirement, with older employees (46%) and those in poor health (42%) most likely to retire later. The majority of workers delaying retirement (60%) expect to work at least an additional three years.
  
  
  
• Nearly three-fourths of respondents (74%) use their employer or plan administrator’s website for educational material to help prepare for retirement. Almost two in three (65%) use online retirement tools and educational material mailed to their home.
  

The Towers Watson Retirement Attitudes Survey was conducted in June/July 2011 and includes responses from 9,218 full-time U.S. employees at non-government organizations with 1,000 or more employees. For more information, visit  http://www.towerswatson.com/united-states/newsletters/insider/6214.

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Pensions Preferred Retirement Plan

October 2011

(NIRS) Washington, D.C.— A new study of the retirement plan choice in the public sector finds that defined benefit (DB) pensions are strongly preferred over 401(k)-type defined contribution (DC) individual accounts. The study analyzes seven state retirement systems that offer a choice between DB and DC plans to find that the DB uptake rate ranges from 98 to 75 percent. The percentage of new employees choosing DC plans ranges from 2 to 25 percent for the plans studied.

 

In recent years, a few states have offered public employees a choice between primary DB and DC plans. The new study, Decisions, Decisions: Retirement Plan Choices for Public Employees and Employers, analyzes the choices made by employees and finds that:

• When given the choice between a primary DB or DC plan, public employees overwhelmingly choose the DB pension plan.
• DB pensions are more cost efficient than DC accounts due to higher investment returns and longevity risk pooling.
• DC accounts lack supplemental benefits such as death and disability protection. These can still be provided, but require extra contributions outside the DC plan which are therefore not deposited into the members’ accounts.
• When states look at shifting from a DB pension to DC accounts, such a shift does not close funding shortfalls and can increase retirement costs.  

Click here to read the full study.

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Pensioners Provide Income to Small Towns: NIRS

July 2011 (Reuters) - Struggling towns and small communities in the United States are finding economic security in their ranks of pensioners, a retirement expert told a Senate committee.





"Pension payments are particularly vital to small communities and economies across the country where there is a lack of diverse local industries or where other steady sources of income may not be readily found," said Diane Oakley, executive director of the National Institute of Retirement Security, at a hearing about the state of pensions.

In recent years the private sector has moved toward retirement plans that combine employer and employee investments in individual accounts.

The public sector has stuck to pension plans that send retirees a defined amount each month generated by employee and taxpayer contributions as well as investment earnings.

Preliminary data collected by Oakley's group suggest that in 2009 public pensions and the remaining private sector plans supported more than $121.5 billion in annual federal, state and local tax revenue. In 2006, state and local pension benefits alone brought in more than $57 billion, she said.

Because pension payments are fixed, retirees who receive them do not tend to change their spending habits in the face of financial crises or stock market instability, Oakley said.

She pointed to rural Costilla County in Colorado. In 2009, $2.1 million in pension benefit payments made up 35 percent of the earned income of the county, she said.

Her group estimates that each dollar of the $151.6 billion sent to public pensioners in 2006 supported $2.36 in economic activity.

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