REALITY OF RETIRED LIFE BEATING EXPECTATIONS;
“SECURE INCOME” MAKES A CRITICAL DIFFERENCE, BUT WORKPLACE RETIREMENT
SAVINGS PLANS ALSO DELIVERING A BOOST
Secure Income Covers Three-Quarters of Expenses for Today’s Retirees,
Helps Support Sense of Optimism, Safety; Yet, Waning Pensions Point to
Growing Income Gap
How to Fill the Gap? Time in a Workplace Savings Plan Has Big
Impact On Retirement Planning, Satisfaction – but Workers Want Secure
Income Investment Options Too
Retirement System at a Crossroads: BlackRock Expert Says Secure
Income Options Are a Company’s Key Fiduciary Responsibility
NEW YORK--(BUSINESS WIRE)--May. 3, 2012--
When it comes to enjoying life in retirement, the reality for current
retirees is beating the expectations of current workers, according to a
new survey released today by BlackRock, Inc. (NYSE: BLK).
The lifestyles of today’s retirees are continuing to draw considerable
support from secure retirement income delivered by traditional pensions
– an income source that will not be as widely available to future
At the same time, the poll shows, long-term participation in a workplace
retirement savings plan like a 401(k) – now steadily replacing the
traditional pension as the dominant corporate retirement offering – is
also emerging as a key boost to well-being in retired life as well as
effective retirement planning among current workers.
Those are among the key findings of groundbreaking nationwide polls of
1,035 retirees and 1,002 workers participating in workplace retirement
savings plans, commissioned by BlackRock in March this year.
BlackRock also released today the findings from a third survey in
which it asked more than 100 U.S. companies about their workplace
savings plans, including whether workers in those plans will be ready to
retire at the age of 65. A copy of those findings can be found at www.BlackRock.com/RetirementSurvey.
How today’s retirees are actually living outstrips what today’s workers
are expecting according to several fundamental financial measures of
Nearly two thirds (64 percent) of retirees strongly agree that their
financial situation allows “having a ‘choice’ not to work anymore” – by
contrast, just 37 percent of workers strongly expect that their finances
will allow such a choice.
Retirees are doing better than current workers expect to do regarding
“buying the things I want after paying for essentials” (46 percent vs.
37 percent) and “easily covering my medical costs” (43 percent vs. 28
Current retirees are also enjoying leisure and family time to a degree
that workers don’t presently anticipate – for example, “spending time
pursuing hobbies as much as I like” (47 percent vs. 30 percent),
“spending time with my family as much as I like” (57 percent vs. 41
percent) and “pursuing leisure activities as much as I like” (44 percent
vs. 31 percent).
Just over half (51 percent) of retirees – but only one quarter (25
percent) of today’s workers - are confident about having enough money to
live comfortably in retirement.
“Though many of today’s retirees are successfully meeting the financial
challenges of life post-employment, the reality is that most are
enjoying the financial benefit of robust, secure income streams – in
particular, defined benefit pensions - that future retirees simply won’t
have,” said Chip Castille, Managing Director and head of BlackRock’s US
& Canada Defined Contribution Group.
“Filling a growing income need as these traditional income sources
steadily erode is perhaps the most urgent problem facing today’s
corporate retirement system,” he said. “Encouragingly, our poll also
found that, as traditional pensions wane, 401(k) and other workplace
retirement savings plans are delivering significant support for both the
prospect and the reality of retirement security and satisfaction.”
Paying for Retirement: A Global Problem
“Safeguarding financially secure retirements is the defining challenge
of global society,” said Robert Fairbairn, Senior Managing Director and
head of BlackRock’s Global Client Group. “In the next few years,
according to United Nations forecasts, the over-60 age group will
roughly triple in size, to 2 billion people – increasing at more than
twice the rate of the population as a whole – even as the global
workforce needed to support them shrinks. Living longer should be a
blessing but many people are worried they won’t have the income they’ll
need to support the retirements they envisage.”
“We face an unprecedented challenge: how to close the growing gap
between the cost of living longer and our ability to finance it,”
Castille added. “Yet, we believe we can do it, and defined contribution
plans can play a vital role. But there is a lot more work to be done if
these plans are to totally deliver on their considerable promise –
particularly when it comes to delivering secure income to tomorrow’s
Secure Income Vital – And Eroding
Secure income – which the poll defined as income from a defined benefit
pension plan, Social Security or an annuity – plays a dominant role in
meeting the financial needs of current retirees, the BlackRock poll
Secure income covers 81 to 100 percent of monthly expenses for nearly
six of 10 (58 percent) of retirees polled. Across all retirees, on
average, secure income covers 76 percent of expenses.
Retirees who have more – rather than less – secure income from
traditional sources are more likely to agree that their finances support
optimism about retired life, a feeling their financial future is secure,
and control of financial risk.
“For today’s retirees, secure income clearly creates a tangible
‘psychological’ as well as practical benefit, helping to support a sense
of safety and security in addition to regularly covering a very large
portion of their ongoing financial need,” Castille said.
Retirees generally agree (83 percent, and 39 percent strongly agree)
that “secure income makes a bigger difference than I thought it would.”
The larger the role of secure income in the retiree’s life, the more
likely they are to agree that “it’s easier to meet all of my living
expenses than I thought it would be.” These retirees are also more
likely to disagree that “it’s more
challenging financially than I thought it would be.”
Within the secure income category, a defined benefit (DB) pension is by
far the most important income source, covering on average about 44
percent of monthly expenses. Social Security covers about 28 percent.
Yet, pensions are increasingly a thing of the past. About eight of 10
retirees polled report having pension income, but DB plans cover just 53
percent of the workers polled. The incidence of such plans drops
dramatically in line with age, from 62 percent of surveyed workers age
55 to 59, to just 37 percent of workers age 25 to 34.
Defined Contribution (DC) Plans Make a Difference – But Need to Do
An estimated 60 million U.S. workers are now enrolled in DC retirement
plans1 – employer sponsored retirement savings plans funded
by employee contributions deducted on a pre-tax basis from income.
Assets under management in DC plans now total about $5 trillion2,
fast approaching the amount of assets in traditional pension plans.
Long term participation in a DC plan has a big impact on sustaining many
aspects of retirement security and satisfaction, for retirees and
workers alike, the BlackRock poll shows. Six of 10 retirees who left
work with 20 or more years in the DC system say they were confident when
they retired that they would have enough money to live on, compared with
just 42 percent of retirees with only five to 10 years in the system.
These longer tenured retirees also are more likely to agree that their
finances “allow me to feel optimistic about life in retirement (62
percent vs. 37 percent) and “my financial risk in retirement is under
control” (48 percent vs. 27 percent).
Participation in a DC plan also has a positive effect on the planning
effectiveness of both retirees and workers.
Nearly two thirds (63 percent) of retirees who had 20 or more years in a
DC plan agree that they have “a clear and specific plan on how to make
my money last through retirement,” compared with just 39 percent of
retirees in DC for five to 10 years. And nearly six of 10 retirees with
more time in the DC system say their retirement planning has been very
effective, compared with just 29 percent of those with less time.
Among workers, 87 percent of those with 20 or more years of
participation say they have been effective at retirement planning,
compared with 69 percent of those with less time.
“The benefits of participation in a DC plan – especially, the
reinforcement of effective planning – clearly build over time,” Castille
said. “We need to get employees into the DC system as early as possible,
and do whatever helps to sustain their active engagement and build their
retirement confidence with a program throughout their working years.”
Going forward, workers have big expectations for their DC plan: 48
percent expect their plan to be their number one source of monthly
retirement income, compared with just 17 percent who expect a pension
plan to fill that role.
Younger workers have even stronger expectations: about two thirds (63
percent) of workers age 25 to 34 expect their workplace savings plan to
fill this primary income generating role, compared with just 32 percent
of workers age 55 to 59.
Can Employment Help Fill the Income Gap?
For current retirees, employment income covers on average 5.24 percent
of monthly expenses. Employment income, however, is relatively more
critical for the youngest, “Baby Boomer” era retirees, those age 66 or
younger - covering nearly 8 percent of monthly expenses – than it is for
older retirees - covering nearly 3 percent of expenses.
Among current retirees, just 1 percent say they are working either full
or part time because they “need to;” however, 15 percent of current
workers anticipate having to do so.
“Though some future retirees are looking to employment to fill at least
part of their income gap, it’s clear that workers really expect DC plans
to address this need,” Castille said. “Plan sponsors should urgently
consider what’s needed in terms of enhanced plan design and focused
employee communication to deliver against this growing expectation.”
Call to Employers to Play an “Activist” Role
Workers and retirees generally agree – but retirees agree even more
strongly – that employers sponsoring DC plans need to assume key
responsibilities for workers’ retirement preparation, particularly
regarding the delivery of secure retirement income.
Both current workers (72 percent) and retirees (91 percent) agree that
plan sponsors should educate participants about the realities of
longevity in retirement, but about twice as many retirees (54 percent)
as workers (25 percent) strongly agree that employers should do this.
A little more than half (51 percent) of retirees strongly agree (94
percent agree) that plan sponsors should provide a secure stream of
retirement income through their workplace plan; 41 percent of current
participants strongly agree with this (89 percent agree).
“Now that they’re actually managing retirement’s financial issues
first-hand, retirees are particularly keen to see employers take an
activist role in helping workers get ready,” Castille said.
Both workers (85 percent) and retirees (79 percent) find appealing the
idea of an investment fund that automatically converts to guaranteed
retirement income, and both retirees (52 percent) and workers (53
percent) agree that they would benefit “a great deal” from having a
guaranteed retirement income product in the workplace plan.
A Crossroads for DC – and the Future of Retirement
Plan sponsors are now faced with making some critical choices regarding
essential elements of DC plan design, Castille believes.
“Current retirees are holding their own, but looking ahead, we can see
crisis on the horizon regarding how retirees will sustain themselves
financially in retirement,” he said. “We still need to bolster savings
levels, and we also need to come to grips with a looming income gap and
address ways to better connect to participants.”
Building financially secure retirements will remain a work in progress
for years to come, and clearly many workers feel daunted by the
challenges of planning and preparation.
Preserving secure retirement income is a critical piece of the puzzle.
According to Castille, helping plan participants generate income has
developed into an essential fiduciary responsibility that plan sponsors
will fail to manage at their peril. “Just a few years ago, introducing
income generating options into a DC plan in the absence of regulatory
guidance was viewed as risky – akin to taking a big leap into the dark.
Today, however, we believe that the much bigger risk is not
to move on the income issue.”
As far-reaching social and economic factors continue to re-define
retirement, demographic shifts make retirement income increasingly
crucial – and the DC approach continues to evolve to meet new and
emerging needs – the responsibilities of all the key parties in the “DC
community” are coming into even sharper focus, Castille noted.
“Current workers need to take every opportunity to improve their
planning and saving – and take lessons from what’s worked and what
hasn’t for current retirees,” he said. “For their part, sponsors need to
reflect deeply on emerging aspects of their responsibility, especially
when it comes to income, and insist that plan providers help by
delivering appropriate investment options and administrative systems.”
For more information on the BlackRock survey, please visit www.BlackRock.com/RetirementSurvey.
The surveys of 1,035 retirees and 1,002 workers were conducted on the
Internet during March 2012 by Boston Research Group on behalf of
BlackRock’s U.S. Defined Contribution business. BlackRock also
polled 118 executives managing DC plans, in an Internet survey conducted
during that same month.
All of the retirees and workers polled have had at least five years
of participation in a workplace retirement savings plan. The
samples of 1,035 retirees and 1,002 workers each have a maximum sampling
error of +/- 3.1 percentage points at a 95 percent confidence level.
BlackRock is a leader in investment management, risk management and
advisory services for institutional and retail clients worldwide. At
March 31, 2012, BlackRock’s AUM was $3.684 trillion. BlackRock offers
products that span the risk spectrum to meet clients’ needs, including
active, enhanced and index strategies across markets and asset classes.
Products are offered in a variety of structures including separate
accounts, mutual funds, iShares® (exchange-traded
funds), and other pooled investment vehicles. BlackRock also offers risk
management, advisory and enterprise investment system services to a
broad base of institutional investors through BlackRock Solutions®.
Headquartered in New York City, as of March 31, 2012, the firm has
approximately 9,900 employees in 27 countries and a major presence in
key global markets, including North and South America, Europe, Asia,
Australia, and the Middle East and Africa. For additional information,
please visit the Company's website at www.blackrock.com.
About BlackRock Defined Contribution
Retirement is harder than ever before. That’s why many of the world’s
largest DC plans trust BlackRock with their participants' retirement
futures. As an independent, global DC investment-only provider,
BlackRock provides a breadth of capabilities and depth of knowledge
across asset management, plan design, client engagement and participant
communications. Our dedicated DC professionals work with plan sponsors,
consultants and financial advisors to share the best thinking from
across the globe and objective insights on the ever-evolving challenges
of this new world. BlackRock aims to help you bring clarity to the most
complex retirement plan objectives, so that together we can deliver the
best possible outcomes for participants. For additional information,
About Boston Research Group
BRG is a strategic market research and consulting firm that specializes
in the financial services and employee benefits industries. The firm
conducts projects dealing with both strategic and tactical marketing
issues, including loyalty and satisfaction, market segmentation, brand
assessment, product development, sales processes, and distribution
strategies. BRG focuses on applying market research information,
collected and analyzed using qualitative and quantitative data
collection techniques and methodologies, to provide solutions for
marketing-related challenges. The firm has extensive experience studying
DC participants, plan sponsors, retirement plan advisors, and search
consultants. BRG has conducted the leading syndicated plan sponsor,
participant and advisor studies since 2000. The BlackRock study was
directed by BRG’s president, Warren Cormier, who is co-founder of the
Behavioral Finance Forum along with Dr. Shlomo Benartzi, a pioneer in
1 Source: Cerulli
2 Source: Investment Company Institute (ICI)
The opinions expressed are as of May 3, 2012 and may change as
subsequent conditions vary. The information and opinions contained in
this material are derived from proprietary and non-proprietary sources
deemed by BlackRock to be reliable, are not necessarily all inclusive
and are not guaranteed as to accuracy. Past performance is no guarantee
of future results. There is no guarantee that any forecasts made will
come to pass. Reliance upon information in this material is at the sole
discretion of the reader.
Call 1-855-BLK-8880 for more information. Visit blackrock.com or
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loss of principal
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Source: BlackRock, Inc.