Academic journal article Financial Services Review

A New Model for Retirement Education and Counseling

Academic journal article Financial Services Review

A New Model for Retirement Education and Counseling

Article excerpt


Many research studies have illustrated that Americans are not adequately planning for their retirement futures and not taking advantage of the retirement programs being made available to them at their worksite. This paper combines original research conducted by the International Foundation for Retirement Education (InFRE) as part of the InFRE Retirement Readiness Project with other studies that have been conducted over the past few years to examine the current state of retirement readiness and why workers' perceptions about their retirement futures generally do not match their actions. The conclusions from this research suggest changes to employer-sponsored Section 457, 401 (k), and 403(b) plans to enhance education and counseling services to address total retirement well-being. The research also suggests modifications to the retirement plan design to simplify and automate enrollment, investment strategies, and distribution choices that can provide income over the participants retirement lifetime. © 2008 Academy of Financial Services. All rights reserved.

Keywords: Retirement; Retirement planning; Retirement education; Baby boomer retirement

1. Introduction

The retirement crisis in America is growing. Studies are continuing to show that, on average, we are not adequately planning and preparing for our golden years. Employer funded benefits, such as defined benefit plans and retiree health care, are being reduced, replaced, or even eliminated as more responsibility to be financially prepared for retirement has shifted to employees.

Of immediate concern is the baby boom generation that is just beginning to enter retirement age. Various studies suggest that this population is far from financially prepared for this life phase, particularly considering the new challenges they, as well as future generation, may face that make their future even more uncertain. These challenges include the potential risks that make the adequacy of retirement planning efforts even more questionable, such as:

* Increasesd health care costs

* Solvenvy of the social security system

* Personal longevity and making money last

* Market volatility and its impact on distributions

* Uncertainties and expectations about working in retirement

* Potential financial and emotional support of aging parents. children, and/or grandchildren

This paper examines recent surveys and reports along with original research conducted by International Foundation for Retirement Education (InFRE) as part of the InFRE Retirement Readiness Project to suggest ways that employer-sponsored retirement savings plans, specifically Section 457, 401(k), and 403(b) plans, can be more effective in helping employees plan and prepare for their retirements.

2. Background: The retirement crisis

2.1. Problem one: Perception doesn't match reality of actions

There has been considerable research over the past few years that illustrate workers are not adequately planning for their financial futures in retirement. One effort that has been conducted by the Employee Benefit Research Institute (EBRI) and Mathew Greenwald & Associates on an annual basis over the past eighteen years is the Retirement Confidence Survey. This survey explores worker perceptions and attitudes about their future years and what they are doing, or not doing, to prepare for retirement. It also compares these attitudes and actions to the reality of retirement as identified by current retirees.

The findings of these surveys have consistency shown that workers are optimistic about being able to finance their retirement even though few have taken adequate steps to plan for these years. Workers also appear to underestimate future need when compared to the responses of retirees as to their financial requirements for a comfortable retirement. An examination of the findings from past Retirement Confidence Surveys illustrates the problem of perceptions not matching the reality of actions. …

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