Help pre-retirees cross the retirement finish line

Key takeaways

• Employees approaching retirement need help as they transition from accumulation to asset protection and retirement income strategies, especially during times of market volatility. They require a holistic approach to make sure they are saving enough, properly invested and prepared to generate a sustainable retirement income stream that aligns with their unique situation and goals.
• While automatic enrollment, automatic escalation and traditional Qualified Default Investment Alternatives (QDIAs) have gotten participants in the race, as financial decisions get more complex and the stakes higher, pre-retirees need professional guidance to get them over the finish line.

Rethinking the single QDIA approach

Ensuring near-retirees have a successful strategy for sustaining a sufficient income in retirement requires rethinking the concept of a single QDIA. Establishing a dual QDIA — one designed to address the needs of younger accumulators and one designed to address the needs of near-retirees — and automatically enrolling pre-retirees into holistic advice and investment management is the next generation of automatic features and a best practice for plan design.

How do professionally managed accounts work?

Managed accounts are professionally managed investment services that use the core plan investment menu to provide pre-retirees with individual investment advice, retirement income planning and payout strategies. Unlike target date funds, managed accounts are personalized to the individual participant’s needs.

These products also provide the plan sponsor protection as the outside 3(38) Investment Manager assumes fiduciary responsibility for investment decisions and allocations. 

But perhaps even more importantly, most managed account solutions offer advice and one-on-one discussions as well as education and outreach. This engagement is critical to successful retirement planning, increased savings and income planning. Additionally, professional asset management with an income objective strategy is designed to mitigate downside risk when pre-retirees and retirees can’t afford a costly mistake.

Managed accounts can help employees make proactive financial decisions

Providing pre-retirees guidance, advice, planning tools and one-on-one assistance well before their retirement age can help drive better outcomes. Many pre-retirees don’t realize that budgeting and developing a written plan approximately 10-15 years before retirement can provide significant benefits in achieving retirement goals.

• 64% of employed Americans report that they want to start receiving information/education about retirement income options 10-15 years before retirement.¹
• Only 46% of pre-retirees have a detailed, formal plan to generate income in retirement.²
• Pre-retirees who have a formal plan to generate income in retirement (96%) are more likely than those who do not have such a plan (69%) to feel prepared for retirement.²

Financial professionals can provide guidance and tools — such as a pre-retiree checklist — so people are prepared for daily spending decisions, health care costs and other living expenses in advance of retirement.

• Americans who have a financial advisor are nearly two times as likely to feel prepared for retirement (91%) compared to those that do not (48%).³
• Employed Americans with a financial advisor (71%) are more likely than those without (64%) to agree they have a plan to turn their employer sponsored retirement plan savings into an income stream once they retire.¹

Managed accounts are designed to help:

1. Maximize savings by taking full advantage of contribution limits and catch-up contributions.
2. Allocate assets appropriately for their time horizon — including protecting against significant losses that could derail or delay retirement.
3. Evaluate future retirement income needs to cover essential day-to-day costs, discretionary expenses and the significant health care expenses many retirees face.
4. Create a retirement income plan and payout strategy that considers all retirement resources, including Social Security, defined contribution plan, pension plan, etc.

Managed accounts and advisory services are no longer optional. 89% of employer decision makers report that advisory services such as managed accounts are important to their employee population.⁴

• 84% of employed Americans who are actively contributing to their empoyer sponsored retirement plan report they are interested in having managed account services (i.e., personalized advice/guidance service that constructs their investment portfolio based on risk tolerance levels) as part of the employer-sponsored retirement plan.⁵

Dual QDIA strategy helps employees and employers

Adopting a dual QDIA and shifting participants from target date funds to a managed account service around age 50 offers advantages to both plan sponsors and participants. The plan sponsor takes advantage of the QDIA safe harbor regulations, which include managed accounts, while providing their employees a higher touch and personalized approach to retirement planning. Employees receive personalized, professional advice on how much to save, how to invest and how to draw down their savings.