Plan Design Blog

Retiree Hindsight Casts Light on Big DC Plan Blind Spot: Income Planning

December 08, 2021

4 min read

Jennifer DeLong| Managing Director, Head—Defined Contribution; President—AllianceBernstein Trust Company

Heather Balley| Managing Director of Participant Communications—Defined Contribution

It’s encouraging to learn that most retirees are living the life they expected. As part of AB’s Inside the Minds of Plan Participants survey, we included a subset of retirees and asked them how things were going. Most are doing fine, and that’s great. But in some cases, retirement realities may not jibe with expectations. While plan sponsors have made a lot of progress to help participants save for retirement, a few survey takeaways suggest more can be done—especially when it comes to retirement income.

Retirees Generally OK, But Income Still a Prime Concern

For the most part, retirees are content in their post-work lives. They’re generally happy to see their hard-earned nest egg kick in, and 45% said retirement life offers everything they expected. But we heard concerns from retirees, too. About half (46%) said they’re nervous about seeing their savings drop as they withdraw income. Considering that 93% of retirees have no other earnings, and with the median retirement account balance at $75,000, this uneasiness seems justified.

Most retirees have maintained their standard of living, but some haven’t fared as well (Display, below left); 32% of survey respondents said their standard of living has declined. Participants are now more worried about living standards, too: for the first time in our survey’s 14-year history, maintaining a pre-retirement lifestyle in retirement became the top participant concern (Display, below right).

Retired or Not, Maintaining Living Standards Is a Priority

Most retirees said their standard of living didn’t change, which is also the top worry for participants (53%) as they plan for retirement.

Source: Inside the Minds of Plan Participants 2021 survey and AllianceBernstein (AB)

In fact, we found that many retiree challenges are also top worries for current participants. For instance, retirees are concerned with the big unknowns, like inflation’s impact on spending power and running out of money if they withdraw too much (Display, below left), while participants are saving to have enough income and live comfortably (Display, below right). Although worries don’t necessarily change or disappear when participants retire, they may get more real—but they don’t have to.

Retiree Concerns Are What Participants Strive to Avoid

Generating a lasting income for a comfortable lifestyle is a top worry and a key goal for retirees and participants, respectively.

Source: Inside the Minds of Plan Participants 2021 survey and AllianceBernstein (AB)

Can Employers Stay Ahead of Retiree Concerns?

To further probe their mindset, we asked retirees what they would have done differently if they had the opportunity. Most responses weren’t surprising, but they clearly show where sponsors can do more to help participants—and perhaps even former employees already well into retirement. For example, “learn more about personal finances” (17%) and “downsize earlier” (16%) are obvious calls for bolstering financial literacy and wellness programs, which are in high demand.

If You Could Prepare over Again, What Would You Do Differently…

The top three responses were put away more money (52%), take better care of health (31%) and work longer (22%).

Source: Inside the Minds of Plan Participants 2021 survey and AllianceBernstein (AB)

When people fail to save enough for retirement, it often just comes down to a lack of access and awareness. The classic movie line, “If you build it, they will come” is just as true for DC plan income features as ball fields. Among retirees, some 45% said that if their employer had offered them an investment strategy that translated savings into guaranteed income, they would have participated. In our view, the number would be even higher if the strategy provided flexibility and total participant control.

No Time Like the Present to Solve Future Income Needs

For retirees experiencing financial challenges, it’s too late to course correct now. The time to think about retirement planning isn’t in retirement but decades before it. The challenges of some retirees, however, serve as important lessons for sponsors who want to help participants avoid the same issues—they simply need the tools and information to get it done.

With the benefit of 20/20 retiree hindsight and real-time participant sentiment in their corner, DC plan sponsors have a great vantage point. From there, it’s a straight path to adopt effective in-plan lifetime income solutions, financial wellness programs and even retiree outreach initiatives, all of which plan participants favored highly in our survey.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

About the Authors

Jennifer DeLong

Jennifer DeLong is a Senior Vice President, Managing Director and Head of Defined Contribution, responsible for leading AB’s defined contribution business in North America. She oversees product management and development, marketing, participant communications, and client services for the firm’s institutional custom target-date and lifetime income solution clients. Additionally, DeLong is responsible for firm’s Collective Investment Trust business and is President of the AllianceBernstein Trust Company. Since joining AB in 1999, she has held various senior client relationship management, product management and marketing roles, all primarily focused on defined contribution, 529 college savings plans and sub-advisory insurance services for both institutional and retail clients. Before joining the firm, DeLong worked in various sales, marketing and client relationship management roles for both small and mega-sized defined contribution plans. She holds a BS in business management with a minor in international business from The College of New Jersey, as well as FINRA Series 6 and 63 licenses. Location: New York

Heather Balley

Heather Balley is Managing Director of Participant Communications for AB's Defined Contribution business. In this role, she provides defined contribution product content, focused on plan participants, to the firm's Institutional and Retail clients. Balley is also responsible for AB's proprietary research that's focused on plan sponsor and participant behaviors, with special attention to target-date funds, participant engagement and confidence, and financial literacy. She joined AB in 2014 and has over 25 years of experience in financial-services communications and marketing. Prior to joining the firm, Balley held various roles in defined contribution, including positions at PIMCO, Lincoln Financial and Mercer Consulting. She holds a BS in marketing and economics from Lehigh University, and holds FINRA securities registrations 6, 26 and 63. Location: New York

Retiree Hindsight Casts Light on Big DC Plan Blind Spot: Income Planning

Retirees Generally OK, But Income Still a Prime Concern

Can Employers Stay Ahead of Retiree Concerns?

No Time Like the Present to Solve Future Income Needs

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