By Transamerica Retirement Management

Most discussions of employee retirement preparedness quickly gravitate toward the common and central question, “Are employees saving enough?” Yet, with nearly 76 million baby boomers projected to retire over the next 20 years, little discussion is devoted to the other major hurdle an employee faces when he or she is about to retire: namely, the complexity of the retirement transition process.

The challenges that today’s preretirement employees face is far more complex than for previous generations. Human resources and benefits departments are often the first, and sometimes, the only point of contact for employees seeking answers on how to effectively transition to retirement.

HR professionals can play a central role in helping employees provide for a successful retirement. They also can provide keen insight into the state of retirement in the U.S. Do they think employees have the wherewithal to provide for their retirement? The savvy required to successfully navigate the transition into retirement? Do they believe their organizations sufficiently prepare employees for retirement?

Transamerica Retirement Management recently commissioned a national survey to better understand how human resources managers and benefits decision-makers view the retirement transition challenges that employees face and their organizations’ supporting role in this process.

This survey uncovered some critical — and troubling — contrasts in attitudes.The survey data revealed that benefits decision-makers:

Taking a Chance on Success
Employers have devoted decades of benefits resources, matching retirement plan contributions, employee education efforts, and the like, toward the goal of helping their employees enjoy positive retirement outcomes. Of course, many organizations provide 401(k) and other retirement savings plans, as well as an array of educational materials and encouragement.

But, while these kinds of plans are instrumental in helping people get to retirement, they fall short of helping them transition through retirement. This reality forces many people to scale back their standard of living, some to return to the workforce and others to live in poverty. Employees entering retirement go from the relative ease of steadily accumulating retirement savings and the protection of employersponsored benefits, to the uncertainty and confusion of going it alone. And unlike previous generations, today’s workers must factor in a complex series of variables to live successfully in retirement, particularly with regard to life expectancy, infl ation and an uncertain economy.

“Often we treat employees at the end of their career as if they were terminated like any other employee, which is unfortunate,” said Sarah Ree, director of employee benefits at technology and entertainment products retailer, Best Buy. “As an employer, focusing on the transition is important – it’s almost a societal measure. It’s the right thing to do for them and their families. We are going to have more and more people exiting the workforce who need to be prepared and need to have a sound financial foundation and transition period.”

The retirement transition process is the period approximately two years before and two years after retirement (leaving a primary career). It’s the time when an employee needs to make the critical decisions necessary to re-establish the income and benefit framework they enjoyed as an employee.

The average length of retirement in the United States is 18 years, according to the U.S. Census Bureau. This figure has been increasing as people live longer. Stanford University researchers report that the average length of retirement for the median male retiree was 13 years in 1965. By 2003, it was 19 years. Roughly half of the additional years were due to improvements in life expectancy and half were due to earlier retirement.

“There is no question they [employees] look to their employer for help — as the employer is viewed as knowledgeable and as having the employees’ best interests at heart,” said Warren Cormier, president of Boston Research Group and co-founder of RAND Behavioral Finance Forum. “Also importantly, as people age, they tend to rely more on their intuition to make decisions. Making decisions based on what or who ‘feels’ right is at best sub-optimal, and at worst extremely dangerous.

“Employees want to feel they are in control, but when it comes to retirement they are woefully ill-equipped to steer their own ship. Add in the complicated dimensions of providing for their health care and lifestyle, the average employee is truly overwhelmed. There is essentially nobody at the helm. This is as true for decumulation, when a retired employee is deploying their retirement assets, as during the accumulation phase.”

It's all about Outcomes
“When they retire from the organization, [benefi ts program] support goes away, but the need doesn’t,” Ree said. “Then it’s up to the employee to seek help on their own — some do and some don’t. The question is, do they know where to go and who can help them? Do they know they’re getting good, sound advice versus someone who just wants a cut? It’s time, energy and effort they probably spend worrying about these things that they could spend elsewhere.”

All it takes is a few misguided decisions by the employee or some bad advice to compromise — even destroy — the opportunity for positive retirement outcomes.

“For a segment of the population, I don’t think it’s a conscious plan to say, ‘in order to retire, I need $2,000 a month,’” says a human resources professional of 35 years, and currently senior vice president of human resources with a global medical device company. “It’s, ‘I’m going to retire at 65 and I’m going to collect my Social Security and I will have saved a few dollars in my 401(k), and I’ll use that.’”

For the average U.S. worker, Social Security benefits replace only about 40 percent of pre-retirement earnings, according to the Social Security Administration. Furthermore, roughly half of all American workers have no pension benefi t, and few have the needed savings for a secure retirement, according to AARP.

In other words, without a realistic plan in place, the risk of retirees  outliving their money is real.

The Do-if-yourself Dilemma
The digital age has delivered an unprecedented amount of retirement planning information in the form of articles, planners, calculators and other resources — an Internet search for information yields more than eight million links. Yet, despite the abundance of information, U.S. benefits directors said too many employees don’t understand how to use information and resources without guidance, or they fail to realize how critical using it is. Oftentimes, employees nearing retirement lack the requisite understanding and financial know-how to successfully plan and transition. In other words, they don’t know what they don’t know.

“There’s just too many pieces, so instead of trying to wade through it, some people tend to shut down and avoid it,” said Jeremy Zajicek, acting benefits manager for Hennepin County Human Resources, Benefi ts Unit, in Minnesota. “Then they’re ill-prepared for retirement.”

Some organizations — like Hennepin County, the largest county in Minnesota with nearly 10,000 employees — provide tangible, hands-on resources for employees
in the way of access to third-party expertise and educational seminars, online tools and handouts. But others are far behind.

In fact, 81 percent of human resources and benefits directors are concerned their employees don’t have the resources to adequately provide forretirement, according to the survey. Furthermore, the survey revealed the majority of benefi ts directors agreed that organizations share — almost equally with the individual — the responsibility to support people in the transition to retirement. This fi nding is a major shift from the common perception that benefits directors are only about active employees.

While employers do not have a legal obligation to help employees transition into retirement with adequate knowledge or nest eggs, benefi ts directors generally agree they have a moral responsibility to “do the right thing.”

Zajicek agreed: “Employers are asking their employees to invest in the organization, and they should care in return. We ask them to manage their work-life balance. We ask them to work on weekends. We ask them to do what they can to help our organizations. To provide anything less than helping them prepare for retirement would be disingenuous — otherwise, the attitude is ‘we’ll use you while you’re here and then discard you.’ It’s about helping employees along the way.”

VIEWS ON RESPONSIBILITY FOR FINANCIAL SUPPORT IN RETIREMENT

Helping Employees See What's Ahead 
Unlike decades ago when most organizations provided pension plans and employees felt confi dent they’d be taken care of in retirement, today the responsibility to make sound retirement decisions falls primarily on the individual. These people face a series of complex decisions and problems to solve in generating and managing their own retirement.

Generally, retirees need to ask themselves questions related to five important areas of retirement: