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Help pre-retirees cross the retirement finish line

How the next generation of auto plan features can help individuals save, invest and draw down retirement plan assets

Employees approaching retirement need help as they transition from accumulation to asset protection and retirement income strategies, especially during times of extreme 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. Voya’s research shows that the majority of individuals without an advisor postpone the budgeting process until five years before retirement—and some even wait until their year of retirement.1

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. Voya’s survey research suggests that individuals who are not receiving advice from a professional are not adequately preparing for the impact retirement will have on many aspects of their lifestyle.2

Managed accounts are designed to help:

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

Offering managed accounts within the retirement plan takes advantage of the employer’s economies of scale and is generally less expensive than if an individual independently hired an investment professional and invested in retail funds outside of the plan.3

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.

Learn more about this strategy in Voya’s latest perspectives paper - Help pre-retirees cross the retirement finish line

Explore the infograph - The evolving reality of retirement savings for pre-retirees  

 

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 through the Voya® family of companies.

 

1 Power of Financial Advice, Voya Consumer Insights & Research, 2018.

2 Power of Financial Advice, Voya Consumer Insights & Research, 2018.

3 Transitioner Checklist Qualitative Exploration, Voya Consumer Insights & Research Team 2019.

 


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