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New Report Offers 360 Degree Approach to Retirement Preparedness

CREATE-Research, Principal Financial Group research offers insights on retirement landscape

October 15, 2013 (Des Moines, Iowa) — A new report released today by CREATE-Research and commissioned by the Principal Financial Group® explores both product-based and guidance-based strategies to address gaps in the U.S. retirement system. The report, titled A 360 Degree Approach to Preparing for Retirement, concludes with approaches for each key stakeholder group — asset managers, plan participants, financial advisors and plan sponsors — to help improve retirement outcomes.

“The U.S. retirement system has progressed positively since enactment of the Pension Protection Act of 2006 and continues to evolve. But it is clear there is still room for improvement,” said Julia Lawler, senior vice president at The Principal®. “This forward-looking report highlights trends and innovations within the system, while also identifying the areas that need attention.”

The report is based on a survey of 148 asset managers, plan sponsors and financial advisors with active involvement in the 401(k) plan space. The respondents had combined assets under management totaling $15 trillion. The survey was followed by 30 interviews with a cross-section of respondents.

Among its key findings, the report lists product features that are transforming both the accumulation and decumulation phases of retirement for defined-contribution (DC) plan participants. The top features most often cited by survey respondents as critical to DC plan participants in the accumulation phase include:

  • A clear income benchmark during the decumulation phase (66 percent)
  • Dynamic asset allocation based on a pragmatic risk profile (64 percent)
  • Broad diversification (49 percent)
  • Embedded advice as part of solutions-driven investing (48 percent)

Features cited as most critical in products used by DC plan participants as they enter the decumulation phase include:

  • High income (55 percent)
  • Inflation protection (48 percent)
  • A hybrid portfolio that invests in an annuity with a separate drawdown facility (48 percent)
  • Capital protection (41 percent)
  • Low volatility (37 percent)

Findings on lifecycle funds, including target-date funds and target-risk funds, show the focus shifting from asset maximization to liability matching. Respondents expect target-date funds in particular to morph in to target-income funds over time, resulting in a blending of the “to” and “through” retirement phases. This shift could potentially create a better framework for managing four key retirement risks: investment, inflation, interest rate and longevity, according to the report.

“Survey respondents agree that accumulation products will be the main target of innovation over the rest of this decade,” said Prof. Amin Rajan, CEO of CREATE-Research and author of the report. “Our findings underscore the need for asset managers to be proactive with respect to innovation, seeking better ways of investing in preparation for the new wall of money that's coming into lifecycle funds.”

Relative to retirement preparedness, the report identifies factors keeping plan participants from becoming more financially secure. Financial advisors participating in the survey listed the following as top constraints:

  • Not saving enough (74 percent)
  • Not starting to save early enough (70 percent)
  • Living beyond their means (69 percent)

Plan sponsors answered the same question, identifying top constraints of plan participants as follows:

  • Not making retirement preparedness a high priority (68 percent)
  • Inadequate education, guidance and support at the workplace (66 percent)
  • Lack of “retirement readiness checkups” at the workplace (63 percent)

The report concludes with best practices in plan design, education and retirement planning strategies, as identified by those surveyed.

“A key theme throughout the report is how the four distinct stakeholder groups each have clear responsibilities within the retirement value chain, whether in the form of education, planning, product innovation or plan design,” Lawler said. “We all have an important role to play in helping Americans achieve a secure retirement.”

The full report is available at www.principal.com/create/retirement360. It is the latest in the annual series started in 2009 by CREATE-Research and commissioned by The Principal. Other reports produced in 2013 include Investing in a Debt-Fueled World, released in June, and Asset Allocation Leaders, Laggards and Newcomers: 2009-2013, released in September. Both are available for download at create.principalglobal.com.

For more news and insights from The Principal, connect with us on Twitter at http://twitter.com/ThePrincipal.

About CREATE-Research

CREATE-Research is an independent think tank specializing in strategic change and the newly emerging business models in global asset management. It undertakes major research assignments from prominent financial institutions and global companies. It also undertakes advisory work for senior decision makers in reputable organizations across Europe and the United States. Its work is disseminated through high-profile reports and events that attract wide attention in the media. Further information can be found at www.create-research.co.uk.

About Target Date Investment Options

Target date portfolios are managed toward a particular target date, or the approximate date the investor is expected to start withdrawing money from the portfolio. As each target date portfolio approaches its target date, the investment mix becomes more conservative by increasing exposure to generally more conservative investments and reducing exposure to typically more aggressive investments. Neither the principal nor the underlying assets of target date portfolios are guaranteed at any time, including the target date. Investment risk remains at all times. Neither asset allocation nor diversification can assure a profit or protect against a loss in down markets. Be sure to see the relevant prospectus or offering document for full discussion of a target date investment option including determination of when the portfolio achieves its most conservative allocation.

About the Principal Financial Group

The Principal Financial Group (The Principal®)[1] is a global investment management leader offering retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services through its diverse family of companies. Founded in 1879 and a member of the FORTUNE 500®, the Principal Financial Group has $450.6 billion in assets under management[2] and serves some 19.8 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.

Insurance products and plan administrative services are provided by Principal Life Insurance Company. Securities are offered through Princor Financial Services Corporation, 1-800-547-7754, Member SIPC and/or independent broker dealers. Securities sold by a Princor® Registered Representative are offered through Princor. Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

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"The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
[2]
As of June 30, 2013

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