How employers can help pre-retirees weather COVID-19
Paula has long planned on retiring by 65. She envisions moving closer to her grown children and spending her weekdays volunteering in a community garden. And though Paula still has five years before she leaves her job, just dreaming about the next stage makes her smile. Or at least it did before the COVID-19 crisis.
Paula likened her feelings about retirement planning during the pandemic to being on a rollercoaster—and she doesn’t like rides. She felt her stomach drop along with every move of the market. Not knowing what to do or how her plans would be impacted caused her many sleepless nights.
While fictional and not representative of an actual client, Paula’s experience is understandable and, unfortunately, relatively common. An estimated 13% of Americans are postponing their retirement because of the implications of COVID-19; while another 40% are unsure of how it will impact their plans for retirement.1 The good news is that employers can help their employees get off the recent rollercoaster and create a plan based on their financial needs.
By providing access to a managed account service, participants benefit from personalized advice and guidance from investment professionals. Managed account services may also include retirement income planning and payout strategies. It’s a powerful combination that may lead to better retirement results and more peace-of-mind for participants approaching retirement.
The pressure is on pre-retirees
Nothing about the pandemic has been predictable, including the impact of the crisis on the economy and stock market. For instance, the Dow dropped more than 35% in the first quarter of 2020—the biggest quarterly plummet since 1987.2 Certainly, investors expect some market volatility over decades of retirement savings. However, the recent market swings have resulted in additional stress for pre-retirees, given that their window for recovering losses is shorter than younger investors.
For instance, an astounding 89% of workers who expect to retire within 10 years said that they’re worried about the impact of COVID-19 on their plans.3 What’s more, amid the outbreak, only 52% of pre-retirees said they felt prepared to retire, compared to 63% prior to the crisis.4 These sentiments piggyback off additional Voya research, which reveals that pre-retirees are also concerned about:
- Running out of money,
- Healthcare costs,
- The emotional transition of retirement and
- Their ability to draw down on their accumulated principal.
These real-life worries may preempt any daydreaming about days spent gardening. But they rarely spur pre-retirees to change their behavior. Most pre-retirees delay preparing for retirement until they’re three years out, according to Voya.5 That’s not enough time to take meaningful action, especially if a sudden market downturn has hammered their portfolios or they face retiring earlier than they anticipated. The latter occurs with more regularity than most expect; 48% of retirees say they had to retire before they planned, most often because of changes with their employer.6
Pandemic planning: Helping pre-retirees plan with managed accounts
In the face of these mounting challenges, Voya’s Consumer Insights and Research team found that pre-retirees have some common and pressing needs. For example, many need help determining when to even begin thinking about retirement. They also need a trusted source of guidance, clear and prescriptive advice and a sense of control over their future. That way, they can preemptively begin planning and stop reacting.
By providing participants access to a managed account service, employers can help their employees meet these needs and more. These professionally managed investment services provide participants with personalized advice tailored to their time horizon, investor profile, risk tolerance and financial situation. Notably, these services help to limit plan sponsor liability as the investment manager assumes fiduciary responsibility for the investment decisions.
Participants typically receive retirement planning education and often have access to one-on-one advisor consultations. The extra attention yields results when they matter most. Consider that across all investors, 94% of those participating in a managed account service reported “staying the course” during times of volatility.6 Those older than 50 had a higher savings rate and improved investment performance.7 Perhaps most significantly, they also had a 180% higher likelihood of having sufficient income in retirement.8
A managed account service provides the right guidance to pre-retirees at the right time, especially now. That was the case for Paula, whose employer recently debuted the option of a managed account service for participants over age 50. She discussed her goals and concerns with a financial professional, who then helped Paula develop a plan designed to help maximize her savings and weather any future volatility. She also now has an income strategy designed to help ensure she won’t outlast her savings.
The guidance and planning provided Paula with some much-needed stress relief. These days, she still keeps her eye on economic and market news. But instead of being on a rollercoaster of worry, she’s back to happily anticipating her retirement—and researching what she wants to plant and grow in the next exciting stage of her life.
Learn more about strategies you can use to help pre-retirees cross the retirement finish line on time.
Or reach out to your Voya Relationship Manager today to learn more about managed account services for your plan.
This information is for educational purposes only. Each plan must consider the appropriateness of the investments and plan services offered to its participants.
All investing involves risk, including the loss of principal. There is no guarantee an investment, investment strategy, or managed portfolio will meet its stated objective.
Products and services offered by the Voya Financial® family of companies.
1. Results from an Ipsos survey among adults aged 18+. With additional question content that is specific to Voya Financial. Wave 1 = 1,005 interviews from March 25-26, 2020, Wave 2 = 1,005 interviews from April 23-24, 2020, Wave 3 = 1,007 interviews from May 29 – June 1, 2020, Wave 4 = 1,002 interviews from June 29 – June 30, 2020. The data is weighted to be representative of the general adult US population age 18+ according to the most recent census data. The precision of Ipsos online polls are calculated using a credibility interval with a poll of 1,000 accurate to +/- 3.5 percentage points. For more information on the Ipsos use of credibility intervals, please visit the Ipsos website (www.Ipsos.com).
4-8. Voya Perspectives, Help Pre-Retirees Cross the Finish Line