Personalization, technology best ways to get retirement back on track: Goldman

A Goldman Sachs study details how life events can impede retirement savings and can have a significant impact on how much an individual saves for retirement.

Sometimes life gets in the way — especially when it comes to saving for retirement.

It’s hard to blame Americans for falling behind in their retirement savings. In fact, according to the recently released Goldman Sachs Retirement Survey and Insights Report, it’s a relatively normal occurrence for even the best-intentioned savers to skip a contribution or two to their retirement accounts. Life events, seen and unforeseen, often arise as impediments to retirement savings and unfortunately can significantly impact one’s ultimate retirement savings.

The Goldman survey showed 40% of working respondents spent time away from work to care for family members; 40% of them needed to withdraw some of their retirement savings and 23% needed to stop saving for retirement. Moreover, 33% of surveyed retirees experienced a financial hardship over the course of their career, and 45% of that group had to stop saving three or more times to pay for other financial needs, like a child’s education.

Put all that data together and it’s easy to understand why the Federal Reserve estimates that two-thirds of Americans either don’t have retirement savings or lack confidence that their current retirement savings are on track.

“While corporate sponsored retirement programs have made significant progress over the years with innovations such as automatic enrollment, automatic contribution escalation, and target-date funds, many individuals still struggle to fully prepare for their retirement,” said Mike Moran, senior pension strategist at Goldman Sachs Asset Management. “This problem is even more acute for certain demographics, such as women. In particular women are four times more likely to feel their retirement savings are behind schedule relative to their male counterparts.”

To get Americans back on the right path to retirement, Moran suggests personalized goals-based solutions provided through a technology-enabled managed account platform because the savings and investing guidance are aligned to achieve the desired retirement savings goal.

Technology can personalize the retirement savings experience by identifying an individual’s retirement income goal based on their salary, target retirement age, spousal information and other factors. Then the data can be used to assess how they are tracking toward that goal by taking into account the savings they’ve accumulated, the rate of their future savings and outside savings accounts.

“From an investment perspective, personalization can better align the asset allocation strategy to take more investment risk to close a retirement savings gap and less investment risk if the individual is on track or projected to meet their goal,” Moran said, adding that while some of these personalization factors may be available from the plan’s record keeper, “these factors can be further personalized by the individual to account for their life events.”

Another benefit of a technology-based solution is that it can recalibrate the individual’s retirement asset allocation and contribution strategy to dynamically account for these changes and keep the strategy aligned toward the individual’s retirement goal.

“It could be a life event or market event that alters the situation, but given the importance of investment compounding to retirement savings, leveraging technology to timely recalibrate can help avoid delays and maximize the amount of time the adjustments can work toward closing any retirement savings gap or reducing investment risk to keep existing savings,” Moran said.

“Unexpected and unpleasant life events such as a job loss, divorce, or death of a spouse are almost certainly going to have an adverse impact on retirement, said Matthew Sommer, head of Janus Henderson Investors’ defined contribution and wealth adviser services team. “One way to mitigate this impact is for advisors and their clients to be sure their financial plan accounts for risk management.”

“Often, financial plans address retirement income needs and asset allocation, with little or no consideration to the unlikely but possible,” Sommer added. “Some risk management mitigation tools such as life and disability insurance can easily be modeled in a comprehensive financial plan.”