Participants Don't Know What to Do with Their 401(k) Savings at Retirement

Participants Don’t Know What to Do with Their 401(k) Savings at Retirement


June 2018, Boston. Since its inception in the early 1980s, the 401(k) plan industry has devoted most, if not all, of its energy and resources into solving for the accumulation component of the retirement savings equation. While there is still more work to be done on this front, Cerulli observes the industry slowly turning its attention to also address the second half of the retirement equation—decumulation. New research from Cerulli Associates, a global research and consulting firm, seeks to draw out participant perspectives on the topic of decumulation and reveals that many need guidance with what do with their proverbial “pile of money” at retirement.

In recognition of the industry’s increased willingness to engage on the topic of decumulation, Cerulli posed the following question to 401(k) plan participants age 45 and older: “When you retire, what do you plan to do with your savings?” Results show that “participants are generally clueless as to what they will do with their accumulated savings,” explains Jessica Sclafani, director at Cerulli. One-quarter of respondents explicitly answered, “I don’t know (what I will do with my 401(k) account savings),” and another one-quarter say they “will ask my existing financial advisor for advice.”

Citing specific survey data, Sclafani continues, “The latter data point can be read as a marginally more prepared version of ‘I don’t know,’ which, in sum, suggests that half of 401(k) plan participants have no idea what to do with the savings they have diligently set aside for retirement. Also, another 8.5% of respondents point to ‘I will hire a financial advisor to help me.’”

Cerulli suggests that advisors/consultants and plan providers work closely with plan sponsors to identify the sponsor’s preferences for retaining the assets of retired participants in the plan and ensure these preferences are reflected in the plan’s available distribution options (e.g., single lump-sum, installment payment program or “SWP,” partial withdrawals, and in-plan annuities).

“Furthermore, this data underscores the important role of advisors in supporting a thoughtful and sustainable drawdown strategy,” explains Sclafani, “as there is clearly demand for withdrawal advice from individuals.”

In addition to addressing the challenges and strategies faced by individual retirement account holders, the second quarter 2018 issue of The Cerulli Edge – U.S. Retirement Edition also highlights new age-based sizing data on the IRA market.

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