University-Provided Retirement Planning Support and Retiree Financial Satisfaction During Retirement: Differences by Gender, Job Classification, and Planning Behavior

Sound financial planning and financial advice is necessary to achieve retirement income adequacy. The shift from defined benefit to defined contribution pension plans and the recent bankruptcy of Enron Corporation underscore the importance of managing retirement accumulation and liquidation risks. This study analyzes the effectiveness and adequacy of institutional-provided information and advice on employees' retirement planning decisions and their satisfaction with financial resources during retirement. Results suggest that retirement planning should begin earlier in an employee's career and that employer-provided retirement information and advice is a highly valued service. Gender, planning practices, job classification, and age are all significant predictors of satisfaction with financial resources during retirement. Targeting women and union employees with retirement information and advice that focuses on allocating contributions using a balanced portfolio approach should result in significant increases in satisfaction with financial resources during retirement. Regulatory objectives should focus on reducing retirement accumulation and liquidation risks, improving the delivery of professional financial advice to plan participants, and expanding qualified retirement plan choice for all labor force participants. To encourage employer participation in employee retirement planning, employers acting in "good faith" should be federally protected from liability for providing retirement planning information and advice to employees.     

A Comparative Analysis of Financial Professionals’ Perception of the Level of Graduating Business Student Retirement Planning Familiarity,Motivation, and Preparedness

Academic, government, employer, and individual interest in personal financial literacy have mushroomed as financial decision making has become more complex, costly, and less paternalistic. Financial illiteracy in America manifests in many ways, including low levels of personal saving, high levels of personal debt, negative financial wealth, a decline in standard of living, and increased demand on social safety networks. For college students, of particular concern is the high level of public and private debt accrued while working toward a degree. It is important to understand how prepared households are for retirement planning decisions and which factors can improve their preparedness. We show that financial education is impactful in reducing financial illiteracy, and provides evidence that taking a personal risk management and insurance course helps to prepare college students to make retirement decisions. Second, we provide evidence that life stage explains differences (similarities) in how professionals self‐rate the importance, familiarity, and motivation to plan and save for retirement versus their opinion on how vital the questions should be to students. Finally, additional evidence is provided showing that demographic characteristics explain differences in the importance and motivation to plan and save for retirement and in the familiarity that respondents have with retirement planning and saving products.     

Worries and plans as individuals approach retirement

The primary objective of an employment-based retirement plan is to provide a secure and adequate income for workers throughout retirement. In the defined contribution (DC) framework, asset accumulation is a means to the end, but not the end. Drawing retirement income from savings and paying for health care expenses in retirement are the two issues that concern individuals the most as they approach retirement. This article examines the attitudes of near-retirees regarding these risks and their plans for managing them. The author discusses how DC plan design can have a major impact on how individuals convert their retirement savings to retirement income; differences in survey responses between those who have consulted a financial advisor or other financial professional and those who have not; and the role of trust in implementing advice.     

Generational differences in perceptions of financial planners

This study investigates the differences in adoption of and perceptions about financial planners among different age groups. Data from a survey of more than 300 people across generations were used to determine if decisions of hiring financial planners, or the types of services requested from financial planners, differed across different age cohorts. Although there are some similarities across generations about expectations of expertise, unselfishness, and trustworthiness of financial planners, there are differences in how financial planners are sought out, and the areas of advice desired by different generations. Millennials and Generation X have a higher preference for independent financial planners over affiliated planners, require more frequent communication with their planners, consider advice for risk management as important as retirement planning, and wish to remain more involved with their planners than the older cohorts.     

An Empirical Analysis of the Effect of Financial Education on Graduating Business Students’ Perceptions of Their Retirement Planning Familiarity,Motivation, and Preparedness

Today's multifaceted and dynamic financial environment requires a high level of individual financial literacy to ensure that sound financial behaviors are the norm. Unfortunately, many individuals have limited knowledge regarding financial issues and are ill prepared to make sound financial choices. The purpose of this article was to benchmark and then determine if graduating business students’ perception of their retirement planning familiarity, motivation, and preparedness improved after taking a semester‐long course in Personal Risk Management and Insurance (PRMI). We discovered that business students were more financially literate than nonbusiness students and that business students’ familiarity with retirement plans and personal level of readiness to make retirement planning decisions improved significantly after taking the principles class. Specifically, we showed that only 15.8 percent and 42.3 percent of the nonbusiness and business control students, respectively, felt adequately prepared to make retirement decisions, while 82 percent of the business students who completed the PRMI class felt prepared. Ex post, graduating seniors who were exposed to coursework covering life‐cycle risks and options to treat those risks perceived that they are leaving college with a better ability to meet the financial challenges that await them. Last, we showed that significant differences existed in retirement plan and investment familiarity based on gender. Our findings provide support for including financial literacy as a general education requirement at colleges and universities.     

Our Retirement in Their Hands: A User Perspective

This paper reports on a survey of Australian retirees' attitudes to financial planning advice before, at or after retirement. The results demonstrate that, despite government initiatives aimed at enhancing consumer confidence in the financial services market, most retirees feel dissatisfied with, and lack confidence in, the services provided by their financial advisers. This suggests an increased role for financial planners in providing not only the additional information required under government policy, but also information that is understandable and useful to retirees.     

The Status of Social Security and Its Role in Retirement Planning: A Professional Advisor's Perspective

Currently, one of the more salient retirement debates surrounds the future insolvency of the Social Security retirement system. In spite of the important role that financial planning professionals play in the retirement and private-savings decisions that individuals make, no research has focused on assessing the opinions of this group. This study uses a survey approach to assess the opinions of financial planning professionals regarding the problems faced by the Social Security retirement system, the solutions that have been proposed thus far, and the use of Social Security benefits in the financial planning process.     

Explaining Low Annuity Demand: An Optimal Portfolio Application to Japan

Using an optimizing financial planning model in the tradition of Merton and Richard we explore how individuals should determine their life insurance and annuity choices, given uncertainty about investment returns and mortality. Both consumption and bequests appear as arguments in the individual's preference function. The model explicitly recognizes the existence of social security in retirement, and of loadings on insurance premiums, due to administration costs in the life insurance and annuities markets. The model sheds light on the reasons for the thinness of voluntary life annuity markets worldwide. The relative importance of pre‐existing annuitization through social security, the role of bequests, and premium loadings are quantitatively assessed within a single optimizing framework. Results are presented for a model specification calibrated to Japan.     

Does retirement planning affect the level of retirement satisfaction?

This paper analyzes the relationship between retirement planning and retirement satisfaction. Do individuals think about and plan for retirement? If they do, do they utilize financial planning services? If they plan, are they more satisfied with retirement than those who did not? Data for 1,781 retired individuals from the first wave of the Health and Retirement Study (HRS) are analyzed using an ordered probit model. The results indicate that thinking about retirement and attending planning meetings have a significant positive impact on satisfaction even when income, wealth, marital status and health are included as explanatory variables.     

Don’t lapse into temptation: a behavioral explanation for policy surrender

Many policyholders surrender their life insurance policies early, leading to substantial monetary losses for private households. Surrender can be explained rationally if it constitutes the last resort providing liquidity in the event of an urgent need of cash. Yet we find clear evidence in German panel data that for more than half of all surrendered contracts investors had cheaper options available to provide the required liquidity. This finding demonstrates that there must be other factors influencing this important life decision. We provide a behavioral explanation, focusing on the role of individual decision heuristics, financial literacy, and financial advice. In particular, we show that financial literacy and financial advice can mitigate the behavioral temptation to lapse, while the tendency to rely on heuristics increases lapse probability.     

Making Federal Pension Policy Work

Abstract

Millions of Americans retire while they are still productive. Of these, many will have the resources to enjoy all of their golden years. Unfortunately, many others will face economic hardships after they have exhausted their own resources but have become too frail to return to work. Part of the problem is that the current pension system is fraught with financial incentives that push ablebodied elderly workers into retirement just when they should instead be encouraged to remain in the workforce to accumulate additional retirement assets. This paper recommends a number of ways to change federal pension laws in order to encourage elderly workers to remain in the workforce. For example, this paper recommends toughening the penalty on premature distributions, repealing the minimum distribution rules, and repealing the exceptions to the Age Discrimination in Employment Act that permit retirement plans to provide early retirement incentives and subsidies.

This paper also considers whether the government should require that all retirement plans be neutral as to the timing of retirement. In an age-neutral world, workers would always accrue more benefits if they kept working. Consequently, more workers would remain in the workforce, accumulating additional assets for their eventual retirement.

Finally, this paper also considers how federal pension policy could help counteract the tendency of Americans to retire too early because they underestimate their life expectancies, overestimate their financial resources, and fail to understand the deleterious effects of inflation. In particular, this paper recommends that the government require that virtually all retirement plans pay at least a portion of their benefits in the form of an inflation-adjusted annuity.     

Effects of risk tolerance,financial literacy,and financial status on retirement planning

In this study, we investigate the effects of retirement planning on the economic and psychological factors of consumers using a large sample drawn from the 2012 National Longitudinal Survey of Youth. Specifically, we examine the combined impact of risk tolerance, financial literacy, savings, income, and debt on consumers’ retirement planning behavior. Risk tolerance, financial literacy, income, and savings are all found to have positive relationships with retirement planning, though debt has no significant relationship with retirement planning. Also, higher levels of risk tolerance weaken the relationship between savings and retirement planning. Implications of these findings for the literature and the financial planning industry are provided as well as directions for future research.

     

Pensions and poverty traps: Is saving worthwhile for women?

Present policy means that a private pension, unless it is substantial, may fail to bring financial gain in retirement due to means testing: the pensions poverty trap. This paper examines women's acquisition of private (occupational and personal) pensions and their risk of facing this trap. Because of the loosening link between marriage and motherhood, previous patterns of pension advantage according to marital status are shifting. The employment and pension impact of motherhood varies with socio-economic status but the pension prospects of the majority of women are poor. It is concluded that women's need for financial advice to avoid the pensions poverty trap is greater than men's. An improved basic pension, indexed to national income, would reduce the risk of mis-selling and restore confidence that saving for a pension is worthwhile.     

Personal bankruptcy and consumer credit delinquency: The case of personal finance education

Given the increasing complexities of the financial markets as well as a shift away from employer/government sponsored pensions to individuals managing their retirement funds, personal finance education is an important tool in order to navigate the evolving and complex financial environment. In this paper, I examine the impact of personal finance education on credit delinquency. Prior studies show that financial literacy affects financial decisions such as savings, retirement planning, wealth accumulation and stock market participation. Using U.S data on personal bankruptcy and consumer credit delinquency rates, I show that personal finance education is important in reducing personal bankruptcy as well as consumer credit delinquency rates. Furthermore, personal finance education does not appear to moderate the impact of gambling legislation on personal bankruptcy or consumer credit default.     

The silver tsunami: an enquiry into the financial needs,preferences and behaviours of retirees

Understanding the financial needs and preferences of retirees is critical for retirement income policy and product design. Today, Australian retirees are accumulating record levels of retirement savings in order to generate retirement income. Using qualitative and quantitative research methods, we find that retirees value leisure spending, but do not plan for long‐term health and care needs. Moreover, retirees value risk protection but are unwilling to forgo potential investment gains. The differing levels of importance that retirees attach to aspects of retirement, health, intergenerational planning and family dynamics suggest that retirement income products cannot be ‘one‐size‐fits‐all’.     

Determinants of seeking advice within defined contribution retirement savings schemes

We report results from a study of superannuation member advice‐seeking within their plan, explaining observed patterns by member age, gender, issue salience and size‐of‐bet effect. Inquiry mode, frequency and volume of contact with the advice‐provider, and sensitivity of members to legislative change and macroeconomic events are considered. Results show that gender (female more likely than male), age (older rather than younger), balance (larger rather than smaller) and experience (longer rather than shorter) are the strongest advice‐seeking predictors, consistent over time. Findings suggest member engagement around retirement planning may be more effective when considering the factors affecting advice‐seeking behaviour in general.     

Improving retirement adequacy through asset class prioritization

Highly risk-averse retirees are generally advised to adopt a fixed spending strategy such as the 4% withdrawal rule. To prevent the premature depletion of a retirement portfolio, the rule attempts to proxy as the ‘safe withdrawal rate’. But a constant withdrawal rate means that retirees accumulate unspent surpluses when markets outperform and face spending shortfalls when markets underperform. While a safe withdrawal rate can prevent spending shortfalls, the opportunity cost of unspent surpluses associated with this strategy can be extreme. We apply a range of basic investment decision rules to a retirement portfolio applying various withdrawal rates and examine the probability of shortfalls over a retirement horizon. Using a block bootstrap simulation technique, we examine decision rules relating to stock and bond investments. Our results show that retirement portfolios with a bias towards stocks coupled with a decision rule that sources withdrawals from bonds and cash before stocks significantly outperforms alternative withdrawal strategies, despite the inherent increase in volatility. This finding is in direct contrast to the safe withdrawal rate conventions used in contemporary financial advice models.     

Insurance Company Employees' Financial Expertise and Practices: Implications on Benefit Participation and Satisfaction

Employers continue to shift financial decision-making responsibility for employee benefits to employees. This article examines employees' financial practices, financial expertise, and levels of benefit participation and overall satisfaction. We show that there are significant differences in employees' financial practices and financial expertise based on socio-demographic characteristics. While levels of benefit satisfaction and employer ranking are high, significant differences in how employees feel toward their employer exist. Employees more highly value traditional benefits than nontraditional benefits, but satisfaction with benefits was high regardless of take-up rate. We also find that respondents are more knowledgeable over experiential financial concepts than more specific financial concepts like qualifying conditions for a traditional individual retirement account. Employer-sponsored financial education programs, which increase employee understanding of employer-provided benefits and their importance to employees' financial well-being, should improve overall employee satisfaction, loyalty, and productivity.     

Financial literacy and the timing of tax-preferred savings account withdrawals

Tax deductions on contributions to registered savings vehicles are a common policy tool used by governments in many industrialized countries to encourage people to save for retirement. However, these plans do not typically lock in funds, which means savers may also withdraw before retirement when their marginal tax rates are still high and forgo the tax benefit. In this paper, we investigate the extent to which pre-retirement savings withdrawals respond to changes in the net-of-tax benefit of withdrawing and whether such behavior depends on the saver’s financial literacy. To that end, we link respondents of a nationally representative financial capability survey from Canada to over 15 years of administrative tax data. Our results show that the correlation between savings withdrawals and the effective marginal tax rate is negative for those with higher financial literacy, but much weaker and sometimes statistically insignificant for those with lower financial literacy. The findings suggest that financial literacy is an important determinant of the extent to which tax-deductible savings plans are used efficiently.