Many plan sponsors associate the fiduciary relationship with a financial relationship, but according to Merriam-Webster, the word fiduciary does not, in and of itself, suggest financial matters. Rather, the term “fiduciary” applies to any situation in which one person justifiably places confidence and trust in someone else and seeks that person’s help or advice in some matter. The Latin origin of fiduciary is fidere, which means “to trust.”
The role we play as fiduciaries has never been more important. The latest Investor Insight Series from the Natixis Center for Investor Insight found that the average worker underestimates when they can stop working, as well as how much they need for retirement.
- People surveyed between 23-38 years old (Millennials) have a targeted retirement age of 61, but are dramatically underestimating their financial needs in retirement, as they expect to need only $822,789 to support what could be 30+ years of living in retirement. As an example, if a 30 year-old today, making $65,000 per year, was able to retire at 61, they would need to accumulate about $1.7m in retirement savings to potentially generate retirement income for 30 years.1
- Those between ages 39-54 (Gen-Xers) expect to retire at age 64 and also underestimated their needed retirement income substantially. People between the ages of 55-73 years old (Baby Boomers), have a more realistic picture of when they can retire and how much they need, but to meet those needs, the average person would have to save $142,000 per year until retirement.
The younger generations should heed the advice of the older generation: start saving earlier, save more, and seek guidance about saving for retirement.
BUT, there is hope. Millennials are saving sooner than previous generations with many saving by age 25 and, because of that head start, they have the time horizon to meet their retirement objectives. Gen-Xers are active managers of their retirement account, with 40% of those surveyed actively managing their investments. Gen-Xers are also noted as the generation most likely to adopt auto-escalation in their saving strategy. And, while Baby Boomers wish they started saving earlier, they are contributing at the highest rates of the generations to close that gap.
The reality for those of us who hold a leadership role for our company’s retirement plan is that the answers are never simple. Getting people to save more requires overcoming overwhelming “today issues.”
- 80% of workers are not participating in company-sponsored retirement plans because they do not have any savings for emergency issues.2
- 2016 college graduates are faced with average student loan debt of $37,172.3
- 43% of Americans spend more than they earn each month and borrow and use credit cards to finance the shortfall.4
It’s clear: to fulfill our duty as “trusted advisor” or “fiduciary” we must first understand the full financial picture of those we serve.
At Sentinel, we believe that we share in the obligation to build financial confidence in the people we serve. As stewards of the people we are tasked with protecting and caring for, we must:
- Recognize that the retirement plan “participant” is a person facing daily decisions about how they spend money, pay off debt and protect their families. For many of us, it’s an “or” answer not an “and” answer. The role we play as plan fiduciary must follow the prudence and process guidelines described in ERISA, but the bar has to be much higher than that: we must be servant leaders, who can empathize with real issues of real people. We must help people navigate their financial issues today while also helping them set realistic goals for the future.
- Acknowledge that education and guidance are key. The decisions people need to make in a retirement plan can be overwhelming, especially if it is someone’s first experience with making investment decisions or making choices between saving for the future versus spending down debt now. We believe that education should be a combination of self-serve coaching through financial wellness or retirement plan technology and, most importantly, opportunities for people to sit down and evaluate their total financial picture with a coach or advocate.
- Understand that plan design matters. Most people will derive the majority of their savings and retirement income from their employer, whether that is through compensation or their participation in a retirement plan. Industry research shows that people will need to save at least 15% of their salary per year to generate enough savings for retirement. Auto Enrollment and Auto-Escalation have helped increase participation and is one of the main reasons younger people are saving earlier. However, our task as fiduciaries should be to design plan options that not only get people into the plan, but set realistic outcomes. Is a 3% auto-enrollment with no escalation over time the right strategy for the person placing that trust in their employer to prepare them for retirement? The answer may be nuanced, but our data shows that for many it will not be enough.
We understand that preparing for retirement is complicated. We understand this because we face the same dilemma everyone faces: how do we save for the future when our current situation is so complicated? While it is undoubtedly complex, we do not believe it is possible. And, we are committed to being “confidence builders” for our employees and yours. There is no greater privilege than earning the trust of others and delivering on the promise to help them achieve their goals.
2 Fidelity Plan Sponsor Attitudes, 2017
3 https://www.debt.com/student-loan-debt/average-statistics/, April 3, 2019
4 Federal Reserve: https://www.federalreserve.gov/publications/files/scf17.pdf •
Date of first use: 1/29/2019 LET-025-04262019