Americans Increasingly Unfamiliar with Retirement Plan Investment Options—TIAA-CREF Survey

Advice and education can help to breach the disjunction between people’s concerns and actions, and target-date fund options—which have built-in adjustments that function over time—can help to guide retirement plan members to decisions that align with their needs.

A TIAA-CREF-sponsored survey has found that 39 percent of Americans report not being familiar with their retirement plan options, an increase of 6 percent since last year. The financial services company contrasts the finding with another that reveals that nearly half of Americans (46 percent) fear that they will run out of money during their retirement. Despite the above findings, 85 percent say they feel comfortable with the choices they have made.

The TIAA-CREF 2015 Investment Options Survey was conducted by an independent research firm and polled a random sample of 1,000 adults nationwide to assess their attitudes, preferences and behaviors related to investment options in their retirement plans, TIAA-CREF reports.

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Teresa Hassara, EVP, Institutional Retirement Business, TIAA-CREF.

Teresa Hassara, EVP, Institutional Retirement Business, TIAA-CREF.

The survey also found that of the 39 percent of Americans who said they are not familiar with all of the investment options in their retirement plan, 42 percent said they chose how to invest their savings themselves. Thirty-one percent of respondents overall said they have made no investment choices, instead leaving their savings in their employer’s default investment option. The survey also found that nearly 40 percent of Americans feel they have either too many or too few options in their retirement plan. “As a result, individuals may be overlooking important options that could benefit them,” a TIAA-CREF statement asserts.

“People may be missing out on options that could help ensure they will achieve their goals, or they could be choosing the wrong options for their particular situation,” comments Teresa Hassara, executive VP of TIAA-CREF’s Institutional Business at TIAA-CREF. “Advice and education can make an enormous difference in helping people ensure that their strategy and mix of investments will fulfill their expectations for retirement.”

Target-Date Fund Option

To address the disjunction between people’s concerns and actions TIAA-CREF recommends the inclusion of a target-date fund within a diversified investment menu. Target-date funds offer individuals the opportunity to choose a fund, based on their planned retirement date, that automatically adjusts over time to ensure an individual is appropriately diversified, according to a company statement. TIAA-CREF’s survey found that only 35 percent of Americans are familiar with target-date funds, and just 10 percent reporting being invested in one.

Those who reported being invested in the funds were asked to evaluate what they find most appealing about them. Of that group, 36 percent said it’s the professional management that automatically and appropriately rebalances investments over time, while another 33 percent highlighted the ease and convenience of a single investment choice as being most appealing.

“It’s unfortunate that more people aren’t taking advantage of target-date funds, because they offer a simple, effective investment option for many people,” Hassara adds. “Target-date funds eliminate the need for individuals to make complicated investment, allocation and rebalancing decisions each year.”

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Those invested in target-date funds can still benefit from professional advice, TIAA-CREF emphasizes. The Investment Options Survey found that 83 percent of people who have a target-date fund also have savings in other investments.

“Even though target-date funds are easy to use,” Hassara stresses, “for those who have other investments, an advisor can help ensure that the portfolio is properly allocated. An advisor can also help people explore lifetime income options that will guarantee that they won’t run out of money.”

TIAA-CREF says that advice and education can also help individuals choose the target-date fund that aligns with their goals, such as helping their savings continue to grow through retirement: 37 percent of respondents invested in target-date funds want their fund to grow slightly more conservative but continue investing for growth as they approach retirement, while another 24 percent want their fund to continue investing for growth without growing more conservative. The survey showed clearly, however, that many people do not realize there are differences between funds, according to TIAA-CREF: Only 55 percent of Americans who are invested in target-date funds recognized that various funds differ in their investment mix.

“While target-date funds are designed with a similar purpose, not all target-date funds are the same, and choosing the right one for your situation is important,” Hassara adds. “People today are living longer and facing retirement horizons that could last more than 25 years, so they need an investment choice that recognizes that reality. It’s important to choose a target-date fund that maintains growth investments through retirement to avoid becoming too conservative too early in one’s life.”

 

Anthony R. O’Donnell // Anthony O'Donnell is Executive Editor of Insurance Innovation Reporter. For nearly two decades, he has been an observer and commentator on the use of information technology in the insurance industry, following industry trends and writing about the use of IT across all sectors of the insurance industry. He can be reached at [email protected] or (503) 936-2803.

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