FMi Retirement Services

Retirement Expectation Versus Reality: Communication Opportunities at the Crossroads

When expectation and reality differ, the results can be tough to take — especially when the subject is retirement. By communicating with employees in a way that recognizes both the perceptions and the realities, employers can smooth the transition from worker to retiree.

With this disconnect in mind, it’s important for employers to pay attention to key areas where worker expectations and retirement reality part ways. They may then be able to direct their communication efforts where they could truly make a difference.

When, where, how much?

Important points where worker perception can be different than retirement reality include when to retire, and how much income will be needed and from what source. Those were among the areas explored recently by the Employee Benefits Research Institute. These topics, along with the basics of managing a household budget, can form the basis of an effective communication program to guide employees into retirement.

Half of the workers who answered a survey expressed confidence that they know how much income they will need in retirement; half also believe they know how to withdraw income from their savings and investments. A higher number (two-thirds) of retirees say such withdrawals are relatively easy.

Just one-third of workers expect Social Security to play a major role in their retirement income. In fact, 50% said it will be a minor source of their retirement income, and 13% don’t consider it a source at all. Contrast that with the response among retirees, where two-thirds say Social Security is a major source of their income.

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On time, early, or late

The timing of the initial Social Security claim is something employees think about, and they seem to believe that earlier is better. Many fail to take full advantage of the program by delaying their claim until they are able to receive their highest possible benefit. About half of employees say they think about the timing of their retirement and how it will impact them financially. But they still plan to claim their Social Security benefits at a median age of 65. Just 23% of workers said they chose the age at which they plan to claim benefits with their maximum available benefit in mind.

Read more about retirement confidence from workers and retirees in the Employee Benefit Research Institute’s latest survey, at

Squeeze Play: Gen Xers Especially Feel the Pinch

Saving for retirement can challenge the best of us. For one group of employees, the challenge seems particularly daunting. Your mid-career colleagues, those between 36 and 56 years of age, may sometimes feel the odds are stacked against them. They are squeezed by their own debt, financial obligations to children who are not yet grown, and often, financial demands of aging parents. How, they may wonder, will they ever be able to retire?

Here are a few statistics about this generation, according to information from an ADP Retirement report1:
  • More than 60% of Gen X workers have dependent children
  • 30% provide financial support to their parents or in-laws
  • 31% have outstanding student debt

About one-third of Gen Xers answering the survey reported concern about their ability to meet current monthly expenses. In fact, in 2017 38% said they used a credit card to afford necessities, up a startling 11% compared to one year earlier.

gen x financials

Meanwhile, Gen Xers appear to be more confident in their ability to retire on time than in previous years. 29% reported in 2017 anxiety about not being able to do so, compared to 37% who felt that way in 2016. And three-quarters of Gen Xers are, indeed, saving for retirement, although about one-third have used their retirement assets for something unrelated to retirement, and nearly half believe they will need to at some point.

Retiree healthcare costs cause concern

A significant point of concern for Gen Xers is the cost of health care in retirement, with 30% citing it as a top concern. (Running out of money in retirement (46%) and health issues (32%) were the worries topping the list). They are right to be concerned. One national provider of healthcare cost-projection software expects a healthy 65-year-old couple retiring in 2018 to need nearly $364,000 in their retirement years to pay healthcare premiums and expenses.2 Even so, only half of Gen X workers who have access to a Health Savings Account use it as a way to build a nest egg toward these expenses in retirement.

Push back with financial wellness education

To push back against the squeeze, many employers provide some form of financial wellness program. A solid financial wellness program should include education about managing debt, setting up and using a budget effectively, and finding ways to save for the future. Such a program can help solidify the relationship between employer and employees — for all ages and pay grades. It can help reduce financial stress on employees, which in turn may improve productivity — since, according to the survey, 34% of Gen Xers report being distracted at work over money. Among them, almost half say they spend at least 3 hours a week preoccupied with personal finance issues during the workday.

Web Resources for Plan Sponsors

Internal Revenue Service, Employee Plans

Department of Labor, Employee Benefits Security Administration

401(k) Help Center



Plan Sponsor Council of America

Employee Benefits Institute of America, Inc.

Employee Benefit Research Institute

Plan Sponsors Ask...

Q: We like to keep an eye on trends that could impact retirement for our employees. Is anything new on the horizon these days?

A: Yes, there are some trends to watch, although some have been on our (and probably your) radar for the last few years. The American Retirement Association (ARA) identified seven of them in a September 2018 presentation for ASPPA. Take particular note of litigation over plan fees. Several factors have emerged among plans undergoing fee litigation, according to the presenter, ARA Chief Content Officer Nevin Adams. Plans that hold multi-billions in assets are often targeted, he said, especially those that include retail-class mutual funds. Also under scrutiny are plans with proprietary funds in their investment line-ups; plans that fail to regularly benchmark their plans and investments; those using assets as a basis for recordkeeping charges instead of per-participant fees; and plans that aren’t working with a qualified retirement plan advisor. None of these factors are illegal, of course. But if they apply to your plan, a thorough review of your processes and procedures could be helpful in maintaining the plan’s effectiveness — and keeping fiduciaries out of court. Learn about more trends identified in the presentation at

Q: Many of our employees are young and carrying debt related to their education. As we implement our financial wellness and retirement communications, we’d like to address the question we sometimes hear about whether it’s better to channel income toward paying off loans or into the 401(k) plan. What are your thoughts?

A: Like so many other choices in life, this one is complicated. The best answer is, of course, to do both. But you don’t want to overwhelm employees so they give up and fail to take any action. We all know that, when it comes to saving for retirement, the earlier the better. But carrying student debt into retirement isn’t smart, and paying if off can free up funds to save for the future. You’re on the right track by educating employees about their overall financial health. As you develop the program, these suggestions may help employees struggling with competing priorities. Tell them to: find out if your bank offers an interest rate reduction for automatic payments on your loan; check for tax breaks you could receive on your student loan repayments; pay down the balances of your highest-rate debts first; and watch out for pre-payment penalties if you do manage to pay your student loans ahead of schedule.

financial charts retirement

Q: Employees have been asking about including socially responsible options among the 401(k) plan’s investments. We want to be responsive but have some concerns. Can you share some of the basics of socially responsible investing? And how might it impact our fiduciary responsibilities?

A: When people refer to responsible investing, they often refer to ESG — environmental, social and governance. You may be surprised to learn that ESG investing has been around for more than 30 years; however, its popularity and importance have increased dramatically in the last decade. An interesting statistic from RBC Global Asset Management shows increasing confidence in performance related to ESG. Their survey in 2018 found that 38% of respondents believe integrating ESG into their investing can improve results. That’s up 14% from one year earlier, and it goes a long way toward alleviating concerns about including ESG among investment choices. In addition, more than 50% of survey respondents say that incorporating ESG into their investment approach is part of their duty as a fiduciary, double the number who said so in 2017. There is more information on this topic here:

Pension Plan Limitations for 2019

401(k) Maximum Elective Deferral $19,000* (*$25,000 for those age 50 or older, if plan permits)

Defined Contribution Maximum Annual Addition $56,000

Highly Compensated Employee Threshold $125,000

Annual Compensation Limit $280,000

Back to "normal"?

Young/new employees dive into stocks

Some benchmarks in the stock market have returned to where they were before the recent recessions, bubbles, and scandals. Others, though, may never be the same. Whether that’s good or bad you can decide for yourself.

Back in 2007, fewer than half of 401(k) plan participants then in their twenties invested their account balances in stocks. Flash forward to year-end 2016, when equities accounted for more than 80% of 401(k) plan balances for over ¾ of twenty-somethings.

The increase may be due in part to the proliferation of auto features in 401(k) plans, and the automatic investments that go along with them. As of December 31, 2016, about 2/3 of 401(k) plans included a TDF in their investment line-up, and 21% of assets were invested in them. For new hires, the numbers are even more impressive: by the end of 2016, 71% of new hires had a balanced fund among their 401(k) plan investments, with 38% of new hire account balances invested in a TDF.

Detailed information is available on investments, loans and more in the study from the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI) at

plan sponsor quarterly calendar

1 Generation X: The Most Financially Stretched and Financially Stressed Generation, ADP Retirement Services 2018
2 Healthview Services 2018 Retirement Healthcare Costs Data Report®,