‘It’s not a product problem, it’s an engagement problem’

Professional advice is essential for individuals seeking to adopt a retirement income solution that is tailored to their unique personal and financial situations, according to a new paper published by Empower.

A confluence of factors has historically made the adoption of a retirement income plan difficult for American workers. Complex products and employer fiduciary concerns have been barriers to greater adoption, argues Empower in the paper, “Retirement income: A modern approach driven by advice.”

However, the landscape may now be at a tipping point, and the road to greater use of retirement income options may soon be on a path for increased growth, says Empower; but that must be driven by advice.

“As a leading retirement provider, we are taking workplace savings a step further by coaching and helping individuals convert their lifetime savings into a stream of income in retirement,” said Tina Wilson, Chief Product Officer at Empower. “It’s not a product problem, it’s an engagement problem. We are here to partner with millions of American workers to ensure they develop a successful strategy that is tailored for their individual needs and produces the best outcomes.”

Retirement income solutions that embed three core pillars — personalization, a holistic view of an individual’s personal and financial situation, and advice — are critical to driving new adoption and providing retirees with a more secure retirement income stream. According to the new paper, retirement income solutions should be:

• Personalized: Everyone’s income and spending needs are different. There is not a one-size-fits all solution. Individuals have unique preferences, needs, and wants. They also have unique socioeconomic backgrounds and health outlooks. The key is to tailor retirement income solutions based on a detailed picture of what a retiree needs and wants.

• Holistic: Understanding an individual’s full financial picture is critical to determining how much retirement income they may need. That means evaluating all household assets and liabilities — including those held by a spouse or partner.

• Advice-driven: Advice from a financial professional is especially important in helping employees figure out if they need guaranteed income, how much they may need, what products to invest in, and which account types (pre- or post-tax) to withdraw money from to maximize income and minimize taxes — all complex tasks. In the end, advice minimizes the risk of employees paying for guarantees they may never use.

Wilson pointed to Empower research showing the difference that advice can make. When individuals receive professional advice, they tend to save 22% more than they would in a target date fund.¹ During periods of market volatility, those individuals making use of a retirement managed account show strong resilience, with 99.5% of survey respondents maintaining their managed account.²

Empower contends that Americans living longer in retirement, demographic shifts altering retirement, and a growing lack of trust in the viability of Social Security are all factors that may lead to a greater embrace of retirement income products.

At the same time, approximately 60% of plan sponsors say they will likely focus more on helping participants convert their plan account balances into income.³ Plan offerings, they say, should seek to meet the retirement income needs of participants leaving their assets in the plan.

Advisors and consultants also agree, with more than 80% of advisors and consultants believing a defined contribution (DC) plan should offer services that support the retirement income needs of plan participants.⁴ In addition, legislation — specifically the SECURE 2.0 Act of 2022— is chipping away at fiduciary concerns by creating a safe harbor provision for retirement plans offering guaranteed income options.

“In a decade, we’ve seen historic market conditions created by the Great Recession, a pandemic, and now, historically high inflation rates,” said Wilson. “Retirement plan participants know they need comprehensive retirement income solutions. We know they need the sort of help that can address risks, speak to their unique preferences and situations, and then advise on the right path forward.”

Learn more about the study.

ABOUT EMPOWER

Empower is the second-largest retirement recordkeeper in the U.S.⁵ It is a leading provider of financial services including advice, wealth management, investing, and retirement services. Headquartered in Greenwood Village, Colo., Empower administers approximately $1.3 trillion in assets for more than 17.8 million investors.⁶ Connect with us on empower.com, Facebook, Twitter, LinkedIn, TikTok, and Instagram.

¹ Empowering America’s Financial Journey study, November 2022.

² Empower Institute, “Advice in Crisis,” March 2020.

³ As More Retirees Remain in Plans, Retirement Income Solutions Follow, plansponsor.com, 2021

⁴ Defined Contribution Consulting Study, PIMCO, May 2022

⁵ Pensions & Investments 2021 Defined Contribution Survey Ranking as of April 2022.

⁶ As of December 31, 2022. Information refers to all retirement business of Empower Annuity Insurance Company of America (EAICA) and its subsidiaries, including Empower Retirement, LLC; Empower Life & Annuity Insurance Company of New York (ELAINY); and Empower Annuity Insurance Company (EAIC), marketed under the Empower brand. EAICA’s consolidated total assets under administration (AUA) were $1,324.8B. AUA is a non-GAAP measure and does not reflect the financial stability or strength of a company. EAICA’s statutory assets total $75.3B and liabilities total $71.8B. ELAINY’s statutory assets total $7.2B and liabilities total $6.9B. EAIC’s statutory assets total $83.4B and liabilities total $81.9B.

On August 1, 2022, Empower announced that it is changing the names of various companies within its corporate group to align the names with the Empower brand. For more information regarding the name changes, please visit www.empower.com/name-change.

Securities, when presented, are offered and/or distributed by Empower Financial Services, Inc., Member FINRA/SIPC. EFSI is an affiliate of Empower Retirement, LLC; Empower Funds, Inc.; and registered investment adviser Empower Advisory Group, LLC. This material is for informational purposes only and is not intended to provide investment, legal, or tax recommendations or advice.

Empower refers to the products and services offered by Empower Annuity Insurance Company of America and its subsidiaries. “EMPOWER” and all associated logos and product names are trademarks of Empower Annuity Insurance Company of America.

©2023 Empower Annuity Insurance Company of America. All rights reserved. WF-2493674-0423 RO-2823308-0423

Learn More:

To learn more about how we’re empowering plan sponsors and their participants to be more engaged in their retirement plans than ever before, call us at 800-719-9914.

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