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Navigating the Road to Retirement Readiness

Scott Matheson, CFA, CPA
CAPTRUST Senior Director | Defined Benefit Practice Leader

Phyllis Klein
CAPTRUST Senior Director | Head of Professional Services

Workers relying on defined contribution plans as their primary retirement savings vehicle must travel a winding and sometimes rocky road to reach retirement readiness. As with any road trip, travelers are under pressure to develop and execute a plan, and also to adapt as conditions warrant. The sun doesn’t always shine, the traffic doesn’t always cooperate, and sometimes the chosen mode of transportation breaks down. The same is true for the trek to retirement: markets can be volatile, the future is unpredictable, and goals change over time.

Americans face financial pressure from their first day in the workforce and well into retirement. Employees must first know to save, which means enrolling in their plan as soon as they are eligible. Once in the plan, they face the difficult task of determining the right amount to save in a way that balances their immediate financial needs with their long-term goals. Finally, and often the most befuddling decision for many, is how to invest. Unlike investment professionals with years of training, advanced degrees, industry designations, and certifications designed to further their acumen, the average participant is often a novice investor.

Let us not forget the dramatic landscape passing outside the window, which further complicates workers’ decisions throughout their journey, highlighted by the following milestones:

Financial market uncertainty. Young workers have been emotionally and financially affected by tremendous market volatility, including the burst of the dot-com bubble in 2000 and the financial crisis in 2008 and 2009. Meanwhile, baby boomers are arriving at their retirement destinations during a period of historically low interest rates, with yields and return expectations hardly adequate to support the 4 to 5 percent withdrawal rates many investors have counted on to get them through retirement. 

Increasing life expectancy. People are living longer, and must therefore plan for more years of retirement spending. For every decade that passes, Americans add two and a half years to our life expectancy.1

• Healthcare cost inflation. A 2013 study by the EBRI revealed that for a sixty-five year-old man to have a 90 percent chance of not running out of money earmarked solely for healthcare, he would need $122,000 saved. A woman of the same age would require $139,000.2

Uncertainty about the sustainability of programs like social security. According to a report from the Social Security Administration’s chief actuary in 2010, “Benefits are now expected to be payable in full on a timely basis until 2037 when the trust fund reserves are projected to become exhausted. At the point where the reserves are used up, continuing taxes are expected to be enough to pay 76 percent of scheduled benefits.”3

For workers yet to engage in retirement planning, perhaps overwhelmed by investment challenges, the automatic-everything defined contribution plan (e.g., automatic enrollment, automatic escalation, and target date funds as the default investment) has been held out by many as the panacea. We agree that auto-features can be a great solution for the permanently disengaged participant, as well as those that we label “pre-engaged,” referring to participants we expect will engage at some point in their career. However, even those participants who wish to engage typically find their options limited to general education, or perhaps some form of impersonal electronic advice, which may not adequately meet their needs or prompt execution. For these workers, a robust participant advice program may be the answer. In our experience, engaged workers want and need help determining an appropriate savings rate, assessing risk tolerance, and selecting the most appropriate investment strategy. 

In a recent survey conducted with plan participants whose employers engage CAPTRUST to provide participant-level advice, we found that employees desire financial advice that reaches well beyond the retirement plan to topics such as debt management and budgeting. These are issues that plan sponsors typically do not have a window into and, while they do not directly relate to investing or the defined contribution plan, they are meaningful to employees’ overall financial wellbeing, and ultimately, their ability to devote financial resources to retirement savings.

For example, excessive debt accumulation has been shown to be a widespread hindrance to retirement saving. HelloWallet, a web and mobile application for employees that provides personalized financial guidance to plan participants, demonstrated the deleterious impact of debt accumulation on savings in a recent study. The study looked at two periods, starting with 2006 to 2007, when many Americans were adding debt due to the sizable gains in housing prices, and again in 2010 to 2011, when many were reducing debt and retirement savings due to the poor economy. The percentage of workers accumulating debt more quickly than savings was 46 percent in 2006 to 2007 and 64 percent in 2010 to 2011.4 With so many workers building debt faster than savings, it comes as no surprise that a PricewaterhouseCoopers survey indicates that the top financial concern of baby boomers is not being able to retire when they want to (cited by 54 percent of respondents).5

Failure to curb excessive debt will invariably lead to inadequate retirement savings. Manageable levels of debt, positive cash flows, baseline investment acumen, and confidence in their retirement plan create conditions that enable employees to engage more seriously. A successful participant advice program can both help create the right conditions for engagement and, once engaged, get employees in the plan, saving enough, investing well, and ultimately, prepared to spend down their assets in retirement.

Perhaps the most significant impact on wealth accumulation and, thus, retirement readiness for participants comes from increasing savings rates. When a professional advisor calculates the amount a participant needs to save to achieve his or her goals, deferral amounts increase by an average of $1,150 a year, according to a 2013 study by Boston College.6 Research also shows that professional advice can yield meaningful results in the selection of an appropriate investment strategy. A recent study commissioned by Financial Engines demonstrates the importance of advice. Those who received help (as defined by the study) achieved annual returns of 3.32 percent higher than their do-it-yourself peers over the study’s time period from 2006 to 2012. Further, 88 percent of those receiving help invested appropriately for their risk tolerance levels, versus 39 percent of the unadvised.7

Finally, and perhaps most obviously, if an advice program is to be successful, participants must desire and value personalized advice. If they don’t, it will go unused. Numerous studies show that participants do in fact want investment advice. One example is a 2013 survey by Charles Schwab, which revealed that 61 percent of those surveyed wanted personalized investment advice for their 401(k) accounts. Meanwhile, 57 percent wished for an easier way to choose the right investments.8 Findings like this clearly show that participants want help as part of their overall retirement benefit program, and to gain the confidence to know whether they are traveling the right route on their way to achieving their retirement goals.

As with any journey, travelers have a choice of the mode of transportation and the route they will take. Some travelers prefer mass transit, akin to the automatic-everything defined contribution plan experience. Other travelers want to be involved in the details of planning and executing their trip, just as many plan participants want to be more engaged in saving, investing, and planning for retirement. While drivers don’t need (or want) to know how to rebuild the transmission in their car, they do need to know the basics of safely operating their vehicle and beware of the rules of the road, and they need to be alert and engaged while driving. Many plan participants would benefit from individual advice from a seasoned professional advisor to help check their financial blind spots, so that they can arrive at their destination safely and on time. 


1 “Living Longer, Living Healthier. What Will the Future Bring?” Max Plank Institute for Demographic Research, accessed June 23, 2014,
2 “Amount of Savings Needed for Health Expenses for People Eligible for Medicare: More Rare Good News,” Employee Benefit Research Institute, October 2013, Vol. 34, No. 10,
3 “The Future Financial Status of the Social Security System,” U.S. Social Security Administration, Office of Retirement and Disability Policy, accessed June 24, 2014,
4 Matt Fellowes and Jake Spiegel, “Debt Savers in Defined Contribution Plans: Size, Causes and Solutions,” October 2013,
5 Ibid
6 Gopi Shah Goda, Colleen Flaherty Manchester and Aaron Sojourner, “Do Income Projections Affect Retirement Saving?” Center for Retirement Research at Boston College, April 2013,
7 “Help in Defined Contribution Plans: 2006 through 2012,” Financial Engines and AON Hewitt, May 2014,
8 “Workers Bank on 401(k) for Retirement but Need Help Making the Most of It, Says New Schwab Survey,” Charles Schwab, August 15, 2013,



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