The Baby Boomer wave continues to take us globally by storm with every generation experiencing the effects of its age-related trends. The latest Baby Boomer wave sees those born between 1947 and 1962 facing the crest of retirement. In fact, 25 per cent of Baby Boomers will be age 65 or older by 2030. In the U.S., those over age 85 represent the fastest growing demographic.
We're living longer.
We're living longer than any generation before us. Around 1900, if you were age 65, you might expect to live another 13 years. Fast forward to the year 2000, and if you were age 65, you could add an average of 20 years to your life span, a 7 year increase in 100 years.
So why are we living longer? Advancements in technology, medical practices and procedures, medical resources available online as well as people choosing healthier lifestyles means our average life expectancy continues to increase. So much so that the statistics about centenarians is astounding. As per Statistics Canada, the growth in our centenarian population -- those who reach age 100 -- is larger than the growth in our population as a whole.
Post age 65, Canadians are told they might expect to live at least 25 to 30 years and that they should be saving for a retirement with that type of long range trajectory. The challenge is that you just don't know how long you'll live. It is as if you've been asked to swing a golf club and hit the ball onto a green but you can't see the pin and you have no idea how far away the hole is. What club should you pull from your bag? A driver or a 9 iron? What is the safest play?
This is a 'saving for retirement' challenge. While you don't know how far in the distance you will have, you can anticipate, based on family history and current census and longevity stats, how long you might have.
Preparation and Education
Whether in Canada or the U.S., research and surveys remind us that we're not saving enough. In fact, the average 50 year old American has just over $50,000 in retirement savings. Closing the savings gap is key, but how can employers help?
Education and preparation are some of the best ways to empower and inform employees who haven't given much thought to their financial future beyond retirement. Here are a few tips to explore:
1) Picture yourself in the future. A good way to do this is to have employees actually envision their retirement and what they will do in their post-working years. What kind of funds do they think they will need to access annually? The more real the retirement scenario becomes, the more a person thinks about retirement needs in more practical terms.
2) Use online free calculators. Many financial institutions and financial advisors offer free online withdrawal calculators. These calculators help you determine how much you'll need to save and how long before your investment income runs out. I've included a some websites with free investment withdrawal calculators for your reference: (Note, I'm not endorsing any of these sites)
3) Estimate how long you might live. Make it real for people to consider this question in terms of their savings plans or lack thereof. There is a free online resource from Hargreaves Landsdown, a British firm that offers a longevity calculator. It is a simplified approach, but possibly effective nonetheless It asks only for your gender, year of birth, and expected retirement age before calculating your "guestimated" life span post retirement.
While these three ideas simply focus on the concept of longevity, the topic is more involved and warrants a deeper dive. We'd like to expand on this topic and its related issues with you. We invite you to contact us. As always, we're here to help so you can focus on what you do best.
In mid March of 2018, Aon, a global professional services firm, released a survey on global employee engagement results. Aon's data compared opinions from more than 5 million employees around the world. While Canada remained relatively high compared to other countries surveyed, it dropped in employee engagement from 70 percent to 69 percent, which still remains 4 points above the global average.
Exploring the Drop
One of the key triggers for the drop in engagement is believed to be related to workplace disruption resulting from the introduction of new technologies and ways of doing business. In the Aon survey, employees shared that they felt more uncertain about the future of their work and experienced higher degrees of stress as a result. Employees appear to be struggling with the change needed to drive efficiencies and what that might mean to the type of work they are asked to perform.
The Digital Age
Beyond the decline of the industrial revolution, companies face adapting to the digital age where pressure to be more efficient, competitive and relevant means looking at ways technology can enhance the customer experience as well as changes to how work gets done.
Thinking through the longer term digital strategy from end to end becomes more complex with the rapidity of change and the pressure from other organizations who might be seen as disrupting their industry through innovation and digital enhancements and upgrades faster than the competition.
While technological advancements can work wonders for business development, in itself, it can't be the isolated response to solving employee engagement issues. Technology and creating a collaborative digital workplace needs to improve human connections in meaningful ways. Introducing technology without addressing what might be fundamentally broken in terms of organizational design or culture, creates only short term fixes that will fall short over time.
According to Gallup, McKinsey and other engagement survey organizations, worker engagement is declining in our always-on society. When introducing technology or digital enhancements, considering how they might influence employee collaboration is key.
Questions to Ask
In a recent Deloitte white paper, The Digital workplace: Think, share, do. Transform your employee experience, they suggest asking specific questions in order to create a fuller engagement picture:
1) How can I best understand how my employees work and how can the digital workplace support this?
2) How can I best leverage my existing tools to deliver a truly valuable user experience and what other tools do I need to supplement this with?
3) How do I manage cultural change, rollout and adoption?
4) How can I measure success and ensure continuous improvement?
In order to respond to changes in the emerging digital age, answers to these and other questions are an important filter when exploring:
- How to support more transparent working styles and social networks;
- How to provide not just customers, but employees with flexibility, choice and personalization so their personal digital experiences outside of work are aligned with what happens for them at work;
- How to keep employees connected virtually with collaboration tools that work best for them (e.g., instant messaging).
The Bigger Picture
Adapting digital technology for the sake of system upgrades and process efficiencies doesn't automatically equate to higher employee engagement. It includes keeping a pulse on how employees can continue to work better together with the right tools at the right time. We have a pool of resources with a depth of knowledge in this area. We're eager to help you develop the plan you need to support your engagement and productivity goals and invite you to contact us. We're here to help so that you can focus on what you do best.
April 2, 2018 marks another Employee Benefits Day. It has been almost a decade since the International Foundation of Employee Benefit Plans (IFEBP) first introduced this special day for industry professionals. As per the IFEBP, it is a day to recognize trustees, administrators, benefits practitioners and professional advisors for their dedication to providing quality benefits and the important role they play in their colleagues' well-being.
The Theme of Behavioural Economics
This year, Employee Benefits Day brings attention to the topic of behavioural economics and driving better employee decision-making. Specific to benefits and financial wellness, understanding how social and emotional biases influence employees is a key learning tool for benefits and retirement planning practitioners.
In essence, the more that is known about behavioural economics and decision-making bias, the better positioned plan sponsors will be to develop and enhance plan designs that help employees improve their finance and health outcomes.
Addressing Irrational Decision-making
Although we'd like to believe that we all make sound and rational decisions, the reverse is often true. Yet, many benefits and retirement services practitioners craft communications as if those reading their messages have a keen interest as well as at least moderate to high knowledge of the subject. Experience, statistics and behaviour patterns show us that we have a greater tendency of making decisions like Homer Simpson rather than Albert Einstein.
If we want better results, it's time to take a closer look at how behavioural economics can help us. While it remains a relatively new science that marries psychology and economics, people's behaviour and inherent decision-making patterns have been fairly easy to predict over time. Yet we continue to make assumptions about employee actions that aren't correct. Although we might not like to believe it, it's more common than not for people to make decisions without considering if its actually in their best interest.
Unconscious Decision-making Bias
Over the years, I've written a great deal about saving for retirement, debt-management and the value of financial planning. As we unpack key elements of behavioural science, its important to examine the effects of unconscious decision-making bias. To help positively sway plan participant actions, here are some decision-making biases to pay attention to:
1) Choice Overload: if there are too many choices, it can stop one's decision-making ability and cause the employee to choose the default option.
2) Illusions of Control: People overestimate that their choice will generate a specific result. Example - if I buy a lottery ticket, I'm going to win. For savings and investment products, the plan member believes they will make better investment decisions on their own rather than with the help of an investment manager.
3) Inertia or Status Quo: People don't like change. The brain thinks of change as pain and seeks to avoid it. When it can't predict the outcome, the brain prefers the status quo as no change is a "reward" not a threat. For savings and investment products, this effect may show up as the decision to remain in the plan's default option.
4) Loss Aversion: People fear loss more than the potential for gain and may consider contributing to a pension plan with contributions taken from their pay seen as a takeaway rather than considering the upside of gaining employer contribution matching.
5) Unrealistic Optimism: This effect plays out when people believe that bad things happen to other people. They don't happen to them. Similar to the illusion of control bias, people believe that if they choose their investments, it will yield stronger outcomes because they are in control of making the investment choice.
Employee communication continues to be a barrier for positive plan results. Why not give consideration to the theories of behavioural decision-making and see if changes the actions employees take have a more favourable conclusion. So on my Resource Page, I've made available the following articles:
1) Stanford Center on Longevity: A toolkit series brief - 10 things you should know about psychological science and behavioural economics to improve financial and health outcomes with employees and customers and;
2) Stanford Center on Longevity: A toolkit series brief - The MORE Design.
3) Benefits Magazine: Designing and Communicating Retirement Plans for "Humans".
Beyond these applicable resources, we invite you to contact us to discuss ways we can apply behavioural economics to strengthen your benefit and retirement program goals. As always, we're here to help so that you can focus on what you do best.
Dave Dickinson, B.Comm, CFP, CLU, CHFC
Experienced Benefits Specialist ready to optimize your group benefits and pension plans.