Help employees navigate their transition into retirement

October 19, 2022

Helping employees understand transition into retirement

There are some who depict retirement as a panacea to the stresses and challenges of everyday life — a carefree time free of the mundane routines of working and yet packed with opportunities to finally pursue travel or other pastimes.

The reality for many, however, comes with mixed emotions and lots of questions… Will I be lonely? Will I develop health problems? Will I have enough money to last a lifetime?

Couple these concerns with market volatility that may impact their investment returns and the uncertainties mount. A recent survey by the Employee Benefit Research Institute reveals that while many people look forward to retirement, others may enter this new phase of life with some trepidation.

The state of worker confidence

The psychological impact for those approaching retirement has the potential to cloud their judgment about their own finances. For some, the emotional turmoil might make them feel psychologically paralyzed, unable to move forward or make important financial decisions.

Feeling confident about the future is one key to minimizing feelings of retirement uncertainty. Yet only 28% of workers are very confident they’ll have enough money to live comfortably in retirement.1 

Perhaps they’re acquainted with one of the nearly two in five people who are already retired who say their health and dental expenses are higher than they thought they would be. In fact, more than a third (36%) of retirees say their overall spending and expenses are higher than they expected. And let’s not forget debt. More than half of workers and over a third of retirees reported debt as a major or minor problem.1 

In the past, many workers could rely on traditional pension plans to help fund their retirements. As we all know, many of those plans have been replaced with defined contribution plans in the form of employer-sponsored 401(k)s. While these important vehicles provide ample opportunities for workers to build savings over time, they are voluntary, and employees may put off participation or not contribute a significant enough portion of their paychecks. This inaction or procrastination could leave older workers feeling regret, only adding to their psychological distress when retirement approaches.

There are many resources that can help older employees understand and anticipate the tactical steps they need to take when leaving the workforce and receiving distributions from a retirement plan. What may be lacking, however, are tools to help them prepare for the emotional anxieties that can also come with retirement.

Advisors and plan sponsors should help equip older workers with the tools and information they need to quell anxieties and transition into retirement with greater confidence.

Tips to help boost worker confidence

To combat feelings of uncertainty, a person needs to feel a sense of control and predictability. The problem is that traditional market investment returns are anything but predictable and are definitely not in any individual’s control.

Before tackling investment strategies, however, it’s important to help workers calculate just how much income they’ll need in retirement. It’s surprising how many haven’t taken this simple step. 

Encourage employees to take advantage of online tools that can help individuals determine their target income. They might be surprised to learn that they’re more on track than they thought. Regardless of their findings, they’ll be able to base decisions on reality rather than a guessing game. Take advantage of other resources available through a plan provider as well, including e-learning programs and planning tools. These types of resources have been vetted, unlike many of the myths and misinformation that are prevalent online.

Advisors and plan sponsors may be able to help workers transition into retirement more confidently by reviewing their asset allocations and rebalancing investments to more accurately reflect their current risk tolerance. One of the biggest fears is potentially losing a significant portion of their savings without time to recoup their losses. Traditionally, the closer someone gets to retirement, the less risk they’re willing to take on. 

A fresh look at a worker’s investment strategy may be in order. Past generations often transitioned investments into less risky bonds or CDs, but abysmal interest rates and yields have made these investment vehicles less appealing for some. Yet, if they maintain traditional investments into retirement, they may face a sequence of returns risk. In other words, low or negative returns in the early years of retirement paired with investment withdrawals could result in a shortfall down the road.

A plan advisor may recommend alternative allocations that align with a participant’s goals. They can also offer one-on-one meetings to discuss risk tolerances or other factors that can affect retirement confidence.

Some plan participants may have set their retirement plan on autopilot in their younger years and now regret not taking more action sooner. As such, it’s important to consider both the economic and emotional transition as they approach retirement. Work together with plan participants to understand their underlying hopes and fears for the future. Then, help craft a strategic and holistic plan that aims to quell uncertainties and fuel fact-based confidence moving forward.

Employee Benefit Research Institute, 2022 Retirement Confidence Survey, 2022.