Academic journal article Financial Services Review

How Prepared Is the Retirement Industry for Meeting the Needs of Retiring American Workers?

Academic journal article Financial Services Review

How Prepared Is the Retirement Industry for Meeting the Needs of Retiring American Workers?

Article excerpt


There are 78 million reasons driving the need for a tremendous increase in the number of professionals prepared to competently help retiring American workers manage their retirement income. The literature, trends, potential societal impact, and complex decisions required of retiring workers are compelling. Retirement income management advice, guidance, and education for clients with assets in employer-sponsored plans are the explosive career growth opportunity of the next decade. Advisors traditionally have not considered the midmarket a primary target, providing students a unique opportunity to enter careers servicing employer-sponsored retirement plans to help meet this need. © 2008 Academy of Financial Services. All rights reserved.

JEL classification: J26; D31; 121; 122

Keywords: Retirement; Retirement policies; Personal income, wealth and distribution; Education of retirement professionals; Professional development

1. Introduction

The United States is on the crest of a perfect storm with the largest generation in history rapidly approaching retirement, with the longest expected longevity, the most assets for which individuals are personally responsible for making last their lifetime, a range of new retirement income products, and uncertain healthcare expenses. There is a need to significantly increase the retirement competence of the financial industry. Through enhancing university educational curricula and financial services training programs, future generations of financial services professionals will obtain a more in-depth understanding of retirement planning.

The need for retirement professionals is not limited to the retail client financial services sectors of banking, mutual fund and insurance companies, and broker/dealer intermediaries. Sixty-five percentage of all retirement assets today are held in employer-sponsored plans (Investment Company Institute, 2007). Companies employ individuals to help with various aspects of the plan such as: management, administration and compliance, and retirement counseling. They also hire financial service providers, third party administration firms, pension attorneys, investment management firms, financial education companies, and consultants for services not retained in-house.

2. Literature evidence for the growing need for professionals

2.1. The $17.4 trillion in retirement assets

As of the second quarter of 2007, there were approximately $17.4 trillion of total retirement assets in the United States (Investment Company Institute, 2007). To put this in perspective, total banking deposits as of the second quarter of 2007 were approximately $8 trillion, including deposits at commercial banks, savings banks, and credit unions (Federal Reserve, 2008). The following table details asset levels according to plan type as of 2006 (Table 1).

It is also interesting to note trends in total retirement assets over time. The following figure depicts the assets held in each of the above accounts over the period 1995 through 2006 (Fig. 1).

Assets in individual retirement accounts (IRAs), 401(k)'s, annuities, and government defined benefit (DB) and defined contribution (DC) plans have experienced over 100% growth since 2000. The following table describes the growth rate of each type of plan (Table 2).

Within the period 2002 through 2006 annuities, IRAs, 401 (k)s, 403(b), and 457 plans have experienced over 50% growth in assets. It is in these areas where the need for future retirement professionals exists, in terms of plan management and participant advisory services.

2.2. Rollover IRAs

As of 2004, IRA assets totaled approximately $3.3 trillion (Investment Company Institute, 2007).11 To put this in perspective, in the same year, total IRA assets equaled that of all DC plans and was second in terms of total assets to public DB plans. As IRAs are self-directed investment accounts, the owners of the accounts are responsible for selecting investments, monitoring portfolio performance, and bearing investment risk. …

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