Many workers often focus only on their overall retirement account balances and don’t always understand or estimate how it will translate into retirement income. Receiving periodic retirement income estimates, however, can help improve the retirement decisions of workers, according to new research by the LIMRA Secure Retirement Institute.
The research found that 52% of the workers it polled say it is difficult to know how retirement savings will translate into monthly income. But as a result of seeing their estimated retirement income, nearly half (48%) increased their retirement savings rate. Among Millennials, this level rises to 55%.
Slightly more than half of workers (52%) say they have seen an estimate of their retirement income, but the gender gap on the assertion appears to be rather significant. According to the research, men are significantly more likely than women to have seen a retirement income estimate — 60% versus 43%.
This apparent gender gap also shows up after people retire, but with an inverse relationship, according to the study. About 4 in 10 retirees wished they had seen more frequent estimates of how much monthly income their savings would generate in retirement before they retired. Women were found to lead this group 52% to 33%.
When it comes to generations, Baby Boomers are more likely to have seen an estimate of their monthly income than Gen Xers or Millennials. Not surprisingly, since they will be retiring sooner than younger generations, they likely have more of a sense of urgency about knowing what their retirement income and expenses will be.
Understanding how retirement savings translates into retirement income also boosts workers’ confidence in their retirement, according to LIMRA. Among workers who received an estimate of what their income would be in retirement, nearly 7 in 10 were confident they would live the retirement lifestyle they desired and that they were saving enough to live comfortably.
Conversely, only 3 in 10 workers who didn’t receive this kind of estimate were confident in their retirement security and that they were saving enough to live comfortably.
LIMRA suggests that offering workers retirement savings income estimates can help bridge this gap. To help workers prepare, the firm suggests that financial professionals can assist with promoting income estimates, not just overall savings totals. In fact, the research shows that 6 in 10 workers were saving more as a result of receiving their income estimate from a financial professional.
While there’s no mandate to include lifetime income disclosures on participant statements, some providers are already doing so and some policymakers want to require it. The bipartisan Retirement Enhancement and Security Act (RESA) includes a provision to require lifetime disclosures, but the retirement component of the "tax reform 2.0" legislation approved by the House Ways and Means Committee Sept. 13 does not.
This comes following the recent formation of a coalition of 24 member firms that rolled out a program to educate consumers (and provide resources to advisors), in an effort to “refocus the national retirement discussion” on lifetime income planning versus accumulation.