Employees need help generating income in retirement

Only 22% of those surveyed are confident in their ability to generate a retirement income strategy if left to their own devices, with the majority worried they'll run out of money in retirement.

A new study shows the majority of 401(k) plan participants don’t believe they can generate a sustainable retirement income strategy on their own.

While most employees are relying on 401(k) savings as their most significant source of retirement income, only 22% of those surveyed are confident in their ability to generate a retirement income strategy if left to their own devices, with the majority worried they will run out of money in retirement, according to Invesco’s annual 2022 defined-contribution research, “Show Me the Income.”

Invesco’s research revealed that almost 70% of employee respondents are worried about running out of money in retirement, and nearly 9 in 10 employees would be more likely to stay in their plan if it were able to generate a regular income stream in retirement. Almost one-third of participants were unaware that staying in the plan after retirement was even a choice, the study showed.

“It’s never too early to engage a financial professional. If you are unsure about anything, working with a financial adviser to put the right tools in place today can greatly increase your likelihood of living a comfortable and dignified retirement,” said Nick Lamb, financial coach at SageView Advisory Group. “Essential tools should include a personalized plan for retirement, and a personalized portfolio recommendation based on your investment goals and time horizon.”

The study showed the severity of the information disconnect between employers and employees. While 78% of companies said they provided communications about turning retirement savings into a regular stream of income, only 38% of employees remembered receiving these types of communications. Generationally speaking, the study showed almost half of all baby boomers (48%), Gen X (44%), and millennials (46%) said they hadn’t received any communications on the topic.

“Employees often feel the task of funding retirement is primarily on them, and with different ideas of what retirement looks like, there’s not a ‘one-size-fits-all’ approach to saving for retirement,” Greg Jenkins, managing director and head of institutional defined contribution at Invesco, said in a statement.

To ease the uncertainty around retirement income and to combat inertia, the study showed that 80% of employees surveyed favorably viewed automatic enrollment into a retirement income solution. As to why, 58% liked the idea of a consistent monthly payment, 44% felt it made the choice easy and 40% appreciated the fact that they wouldn’t have to pay a financial adviser to manage this money.

“Quite simply, we found that employees want their employers to start the retirement income conversation — specifically on how to turn their DC plan savings into an income stream in retirement,” Jenkins said. “To ensure employees are not only prepared for retirement, but provided with income throughout, it is crucial that employers look at a range of tools and income solutions and consider early, more frequent educational support to help employees have a smooth transition.”