The Retirement Flight Path

Were you one of the millions of travelers heading to the airport this past weekend to get home from your Thanksgiving trip?  Luckily, despite a predicted increase in the number of holiday travelers this year, travelers returning home after the long Thanksgiving weekend found generally good weather, few airport delays and even manageable conditions on the nation’s highways, according to the Associated Press. 

As I watched the news coverage of the crowded airports during the holiday, it reminded me of a book I recently read that offers the analogy of a plane trip to the journey towards retirement.  Save More Tomorrow, sponsored by Allianz Global Investors Center for Behavioral Finance and written by Professor Shlomo Benartzi, explains the path to retirement as “The Retirement Plane Journey.”  Here’s the flight path:

Takeoff:  For an employee, the beginning of the retirement journey starts with enrollment into the company retirement plan.  However, some employees find themselves stranded at the terminal with nowhere to go because they chose not to enroll, so they end up grounded.  Benartzi points out that an employee sometimes is offered a retirement plan where enrollment is automatic for new employees, which he calls “auto-takeoff.”  Some retirement plans still require steps to be taken to enroll, but that leads to a strong likelihood that employees end up not participating or being “auto-grounded.”  If you handle your company’s retirement plan, are you the busy airline rep who is either automatically issuing boarding passes for your new hires, or are you putting them on the stand-by list and not giving them a seat assignment?

Climb:  The plane’s climb towards cruising altitude is similar to an employee gradually increasing their savings rate into the retirement plan.  Employees who don’t increase their savings rate find their journey caught in a holding pattern, unable to even get to cruising altitude.  Benartzi shares his appreciation for plans that are on “auto-climb,” where saving increases are automatic.  However, only about 19% of companies are currently offering this type of auto escalation feature, according to the SHRM 2012 Employee Benefits Survey.  That means the majority of employees are at risk that an adequate savings rate will not be reached, so they are stuck in an “auto-holding” pattern.

The Ride:  Employees who can elect to have their portfolio managed by an expert  are set to enjoy a smooth ride to retirement.  A turbulent ride could be on the horizon for employees who elect to manage their account themselves and in all likelihood, who won’t do a very good job picking an investment strategy.  Plans that have a target date fund or a managed account option as the default put their employees on track for an “auto-smooth” ride, but plans that rely on employees to choose their own investment strategy that may see investment returns that are more erratic are on “auto-turbulent.”

Landing:  Just like landing a plane, the distribution procedure is among the most dangerous of all the maneuvers of the retirement journey, says Benartzi.  Will your employees have a safe landing or a very distressing crash landing?  At the recent West Coast P & I Conference (which is where I picked up the book) held in San Francisco in early November, there was lots of talk about adding guaranteed income options to the investment lineup for defined distribution plans, which would provide a safe landing for employees at the end of their journey.  In one of the sessions I attended, almost half the audience raised their hands when asked who was considering adding an annuity option, so is this something you’ve considered so you can wish your retirees Bon Voyage?

I like to think of myself as the friendly airline attendant that will assist your workforce on their journey.  My favorite airline, Southwest, takes a humorous approach to the boarding process, and I’ve learned from my flying experience that their jokes and humor get the attention of the otherwise disengaged passengers as they make the safety announcements.  A bit of humor also goes a long way in engaging employees during group retirement workshops and like the peanuts and pretzels from Southwest, a bit of candy or a two dollar bill given to the audience encourages active participation in the retirement discussion. As you pilot the retirement plane, who do you have working the aisles?

 

 

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