Exposing the retirement income myths between plan sponsors and employees
Reality: Employees plan to retire later than employers anticipate.
Most employees expect to retire at the age of 65. However, plan sponsors report that the average age of retirement for their workforce is four years sooner at 61. This also aligns with Employee Benefit Research Institute research showing that 6 in 10 retirees leave the workforce earlier than planned, often due to factors out of their control.
By encouraging the use of retirement tools and online calculators, commonly provided to participants by retirement plan recordkeepers, employers can help ensure both parties have a clearer, more realistic understanding of when employees may be ready for retirement. Driving greater use of these resources may help employees have a better view of steps they can take to accelerate their pace to retirement or at least reduce chances that they miss easy opportunities to prepare for a retirement that could come sooner than expected.
In my experience, one of the key reasons employees feel they need to work longer is fear of outliving their savings, which aligns well with other perception gaps we observed in our study.
Reality: Employees are thinking about their 401k as a comprehensive tool to help prepare for and live in retirement.
A majority of employees are viewing their retirement goals in terms of a monthly income target rather than a target lump sum they need to reach, an encouraging shift in perspective that reflects a more practical approach to retirement planning.
Employers can support this mindset by providing access to personalized financial resources, like budgeting or debt management tools, and professional advice to help them optimize their strategies for reaching their income targets.
Reality: Employees aren’t as knowledgeable as employers think they are about retirement income needs.
Even though employees are focused on income targets in their planning, most struggle with understanding how much income they’ll actually need to achieve the lifestyle they want in retirement. Employers tend to also overestimate workers’ confidence here: approximately half believe their workforce is aware of how much income they’ll need in retirement, yet only 27% of workers actually feel knowledgeable on this important topic.
Many workers also overestimate the amount they can safely withdraw each year without running out of savings — 63% believe they can withdraw 5% or more per year, overshooting commonly held rules of thumb designed to help retirement savers avoid outliving their savings.
These disconnects suggest employees could use more help with understanding how to translate their savings into income they can rely upon in retirement — regardless of how long they live. Employers can assist by providing targeted education and resources, or by incorporating retirement income offerings within their plans that simplify the process for employees.
Reality: Employers overestimate the satisfaction employees have with the investment options available to them.
Nationwide’s study echoed the Aflac research, finding that 86% of plan sponsors think employees are satisfied with the retirement offerings available to them, but only 62% of employees agree with that sentiment. This trend, consistent in our research since 2021, underscores the need for employers to solicit regular feedback on benefit offerings from their workforce and consider new solutions that can help fill potential gaps.