Older Americans are warming to retirement solutions that combine in-plan income solutions and retail advice to address a broader set of needs than currently offered within employer-sponsored retirement plans, according to a new report.
Hearts & Wallets’ “What Older Americans Want from Workplace Investing: Ideas for Improving Advice & Income Products” study finds that the urgency to get more advice than what is available through current workplace service models is growing for older affluent Americans who currently prefer rollover IRAs to former employer plans.
The report notes that there are 43.5 million households ages 55-74 that control $31 trillion in assets or 55% of all investable assets in the U.S. But because these investible assets are often spread across a variety of workplace and retail accounts, older Americans are looking for more comprehensive advice and solutions. These older Americans say their biggest unmet needs for advice are:
- evaluating how real estate holdings and investments relate;
- how to optimize saving and investing to minimize taxes; and
- their outlook for working in retirement.
In the past, this cohort has been more resistant to leaving money in a former employer’s plan, but that appears to be declining, according to the report. In 2015, 54% of survey respondents ages 55 to 74 indicated that they were not comfortable leaving money in a retirement plan sponsored by a company they no longer work for, but that level dropped to 38% in 2020.
This resistance has decreased the most among those ages 55 to 74 in the under $100,000 wealth group, while enthusiasm is highest in the $100,000–$500,000 wealth group, where agreement that they are “comfortable” rises to 31% among people eligible and participating. The report further suggests that receptivity might increase as more in-plan income solutions are developed and launched.
Workplace Resources
At the same time, the findings show that most people age 55 and older are less engaged with workplace resources than other sources of investing information and advice. The firm’s research finds that one in three participants ages 55 to 74 do not use employer-sponsored retirement plan resources at all as a source for investing advice and information, and only 1 in 10 use plan resources as their “go-to or primary source.”
Engagement is higher among respondents ages 55 to 64, but it drops substantially for those age 65 and older. Fewer than half (44%) of respondents age 55 to 64 use employer-sponsored programs, including a 401(k) or 403(b) provider and its representatives, to some degree. When they do use this source, it is most often a “sometimes” source, the report shows. Only 23% of respondents age 65 and older use workplace resources to any degree, again most often as a “sometimes” source of advice.
The report further reviews complaints and perceived disconnects identified by older affluent Americans as the reasons current workplace resources aren’t working for them and their suggestions for employers and financial services companies to enhance workplace offerings.
Among the complaints and perceived disconnects are that:
- workplace advice is generic and representatives are often inexperienced;
- there is too little proactive outreach;
- saving, investing and advice are not the employer’s area of expertise;
- retirement ends the employee-employer connection; and
- finances are the employee’s private business.
Among the suggestions by older affluent consumers offered for employers and financial services companies are to add lifetime income solutions, more comprehensive advice, and guidance on options for working longer in different roles.
Hearts & Wallets suggests that for recordkeeping platforms and employer clients that want to serve older affluent investors effectively should:
- broaden advice to include personalized guidance on human capital, real estate and tax optimization;
- create options for participants to pay more to get more, either at the plan sponsor level or the participant level;
- offer pension-like income solutions;
- use call routing to connect older affluent consumers with more experienced reps;
- increase proactive outreach; and
- clarify privacy concerns by separating roles of the employer and vendors.
Broadening service offerings may also pay additional dividends. According to the findings, older consumers ages 55 to 74 are 10 percentage points more likely to recommend financial services relationships when their retail and workplace accounts are at the same firm than consumers in relationships with only retail accounts. Similarly, consumers in relationships with only employer-sponsored accounts are least likely to recommend—with a gap of 20 percentage points versus consumers with both types of accounts.
“The best solution is in-plan income combined with retail advice,” suggests Laura Varas, CEO and founder of Hearts & Wallets. “Regulatory divisions, which lead to one-size-fits-all advice in the workplace, frustrate consumers, who want choices.” Varas adds that recent merger and acquisition activity, such as Empower’s purchase of Personal Capital and the integration of Edelman and Financial Engines, are a “smart way to prepare for what will hopefully become more integrated solutions in the future.”
The report draws from the Hearts & Wallets Investor Quantitative Database of over 100 million data points on consumer buying patterns from 60,000 U.S. households, and the firm’s Explore Qualitative Database, which includes over 8,000 curated consumer stories on future trends. In addition, its latest IQ Database survey wave was fielded in August 2020 and includes 5,920 U.S. households.
