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Working Longer for Less:
Why Education for Retirement Investors is Crucial

Twenty-five years from now, warns Dallas Salisbury, American workers can expect to retire later than they do now yet still face a greater chance of outliving their assets.

Salisbury, president and chief executive officer of the Employee Benefits Research Institute, a Washington, D.C.-based think tank, told the SVIA 1999 National Forum that several trends point toward this less-than-rosy retirement picture for the nation's baby boomers. They include ever-lengthening life expectancy rates for U.S. citizens, the ongoing shift from defined benefit to defined contribution pension plans in corporate America, and the reluctance or inability of many people to participate fully in the defined contribution plans available to them.

"In another 10 years, money in IRAs and Keogh accounts could equal all of the money in defined benefit and defined contribution plans combined," Salisbury told his audience. "This is a fundamental change in where retirement assets are sitting."

Still, he said, too few working Americans have absorbed the importance of investing for their own retirement. In one recent survey, for example, 22% of federal workers said they didn't participate in their retirement savings plan. In another, 80% of private-sector workers said they don't expect to get as much money as they should from Social Security-yet 75% said it would be their primary source of income in retirement. Worse yet, many incorrectly believe that their Social Security benefit will be at least twice was large as the actual amount.

Salisbury is no Chicken Little. He doesn't expect the Social Security system to go broke. But he does see it evolving into a floor for retirement income for many Americans, rather than the primary source of retirement income. And that means plan sponsors must do a better job of educating their work force about the need to save for retirement, and even offer them advice on how to do it.

David Wray, president of the Profit-Sharing/401(k) Council of America, believes it will happen.

"We will see investment advice becoming an important part of the education effort," Wray said in his address to the SVIA 1999 National Forum. "And that advice will not only be about how to handle asset allocation, but also about the importance of investing in the first place. I think that full-service financial planning will be a typical employee benefit within 10 years."

Wray said that in some cases advice may be offered electronically through Internet-based financial advisory firms as Financial Engines and the 401k Forum, which are already making investment advice available to participants in defined contribution plans where the employers have funded the cost. In other cases, the advice may be dispensed in annual face-to-face meetings between individual employees and financial planners.

Cindy Hounsell, executive director of the Women's Institute for a Secure Retirement, noted that investment education and retirement planning are particularly important for women, 80% of whom die single thanks to the longer life expectancy that women enjoy when compared to men.

"The segment of the population that will be growing the most in the near future is what some have called the 'old old,' or those who are 85 years old and older," Hounsell said. "That's why, when I hear women talking about saving for a college education for their children, I advise them to think first about saving for their retirement. Their kids will go to school; there are scholarships available. There are no scholarships for retirement."

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