Using SOA Research Institute Consumer Research and Consumer Resources: Part 1—Helping Individuals Understand and Fill Gaps in Retirement Planning

By Anna Rappaport

Retirement Section News, July 2024

Building on the research done by the Committee on Post Retirement Needs and Risk, which started in 2002, the SOA Research Institute’s Aging and Retirement Strategic Research program has conducted a variety of consumer research projects to learn what consumers know and how they plan for and manage retirement planning. This article is the first of several articles that offer insight into where consumers are today, identifies gaps in understanding, planning and managing retirement issues, helps us understand how consumers act at various life stages, highlights consumer information collected by the SOA Research Institute and provides some recommendations for working with different stakeholders to improve retirement planning. This article identifies the components of the research and how they fit together and provides a summary of major findings with regard to gaps in knowledge and planning. Additional articles will provide a discussion of key findings with regard to individual actions at different life cycle stages, observations about how they go about retirement planning and an inventory of consumer information available from the SOA.

This article series will offer a concise summary of an extensive body of work focused on improving retirement planning and management. A repeated finding from this work is that individual actions fit patterns that are different from what the planning methodologies and professional advisors believe they are or should be doing. These differences have created gaps and mean there are significant opportunities to help improve retirement planning and management, particularly in our world today where individuals have so much responsibility for their own financial security. The SOA’s and consumer research provide a valuable resource for consumers, financial advisors, and practicing actuaries in light of the current focus on Defined Contribution (DC) plans. This series of articles should also be valuable to individuals planning for themselves and their families. Actuaries are encouraged to share these resources with others in your communities, and I hope that this will be a helpful resource from the Society of Actuaries (SOA) and the actuarial profession.

SOA Research to Understand Personal Actions and Help Improve Retirement Outcomes

The SOA Research Institute recognizes that the pace of change has picked up in the last few years and that professionals may have incomplete understandings of challenges individuals face and knowledge of personal actions. The changes in the retirement system environment includes a shift away from plan sponsor risk bearing, an aging population and changing workplace together with the expansion of data, technology and research methods. The SOA research program is designed to help actuaries, other retirement professionals, plan sponsors, and other stakeholders to improve the retirement system and their strategies in this fluid environment.

SOA Consumer Research at Different Times During the Lifecycle

The SOA conducted a series of Focus Groups and In-Depth interviews to understand what retirees and individuals planning for retirement said about retirement and their plans. They included:

• “The Decision to Retire and Post-Retirement Financial Strategies: A Report on Eight Focus Groups,” 2013.
• “Post-Retirement Experiences of Individuals Retired for 15 Years or More: A Report on Twelve Focus Groups and Fifteen In-depth Interviews in the United States and Canada,” 2016.
• “Post-Retirement Experiences of Individuals 85+ Years Old: A Report on Sixty-two In-Depth Interviews in the United States and Canada,” 2017.
• “Life Journey Study: A Report on 40 In-Depth Interviews in the United States and Canada with Adult Children of Recently Deceased Parents,” 2019.
• “Retirement Decision-Making Among Early Middle-Aged Adults,” 2023.

The SOA Research Institute has conducted surveys of post-retirement risks and the process of retirement biennially since 2001, and it is conducting the next iteration of the survey in 2024. Note that each post-retirement risk survey includes trended repeated questions and then topics of special interest that vary by survey. The individuals sampled for these surveys include pre-retirees (age 45 and older) and retirees.

This work was expanded to cover all generations when a survey was conducted for different generations in 2018 and 2021. These surveys looked at a broader set of financial concerns.

The consumer research topics and methods were expanded when it used conjoint analysis for a new study in 2023: “What Retirement Plan Features Do Employees Really Want?” That study was supplemented by a tool to test results for different populations and plan provisions.

Other Research Focused on the Changing Context and Environment

In addition to the consumer research, the SOA conducted a number of commissioned research projects, issued a variety of calls for essays and papers, and had focused on some issues that are important to retirement but may be neglected in life planning. The Aging and Retirement Strategic Research effort brings together and unifies several different areas of research and collaborates with other groups, inside and outside of the SOA. The Committee on Post-retirement Risks focuses on the individual, the Retirement Section Research committee focuses on supporting actuaries who most often support the needs of plan sponsors and/or the financial service industry, and the Long-Term Care Section Research committee focuses on the financing of long-term care insurance. It also includes a group focusing on mortality and experience studies.

The SOA Research Institute also focuses on a variety of emerging risks and technologies and new ideas. The Institute works to help actuaries respond well to a changing world and to incorporate new ideas and techniques into their work. Here are a few examples:

• A look into broad trends that may affect retirement: “Megatrends Affecting the Future of Retirement Plans.” Study by futurists using trend analysis.
• Looking at the intersection of climate change and retirement: This work includes development of models and calls for essays.
• Elder Tech events: These events identify a variety of new approaches using technologies and put actuaries in contact with what they do.
• Emerging risk surveys: This is an annual survey of risk managers to see what the top risk concerns are for a variety of organizations.

The SOA Research Institute recognizes that the world is changing rapidly and conducts projects that enable actuaries to understand the changing environment and use that information to structure innovative projects and solutions for the users of their work.

Repeated Findings from the Research: Gaps in Financial Literacy and in Planning for and Managing Retirement

The SOA’s body of work provides a number of repeated and some newly identified themes that offer insights into issues that are often omitted from or not handled well when individuals plan. These insights identify opportunities for financial wellness providers, plan sponsors and professionals working with various stakeholders to improve tools and resources for planning or consider changes in policies and the system in order to improve retirement security.

The gaps include:

• Little knowledge about investments (across all generations): This is particularly troublesome when so many plan sponsors have shifted to defined contribution plans as their primary retirement benefit.
• Many individuals retire earlier than expected: This often happens because of health, difficult working conditions or family needs. It often leaves people with lower resources than planned for and the need to make adjustments.
• Short planning horizons and planning focused primarily on expected cash flows: There are several consequences of limited planning over shorter periods including failure to recognize the importance of inflation, other risks and shocks. Some of the risks that are often not planned for include disability before retirement, long-term care, outliving one’s money, and unplanned, irregular expenses. Some of the expenses easily missed in planning include home repairs, increases in insurance costs and taxes, high dental expenses, family members needing help, and more.
• Misunderstandings about both Social Security and Medicare: It is common to overestimate what Medicare will pay, including expectations that it will pay for long-term care. SOA Research Institute research also indicates that many people are not focused on the gap between Medicare funding and benefit levels. Many younger people also anticipate Social Security will go away, and few people understand that, under current law and the latest forecast, the current benefit level is projected to be reduced about 23% when the trust fund is projected to be spent down in 2035, but the system will not go away.
• Little focus on change during retirement: Most people experience a variety of changes during retirement. Such changes may include the loss or disability of a partner, growing personal limitations, assuming responsibility for or sharing a home with another family member, a home becoming unaffordable, needing substantial help, and more. The changes may make it very desirable to prepare for additional support.
• Long-term care: Many of the participants in the research studies seem to understand that many people will need long-term care, but they think it will be someone else that needs it, so they don’t plan for it for themselves.
• Role of family in supporting each other: Family can often play important roles in supporting each other, but this is often ignored in planning.

The 2023 focus groups with people ages 35–45 identified some new important issues for plan sponsors, wellness providers and policy makers to think about:

• Many of the participants expected to retire very early compared to the expectations of older cohorts of individuals. For a number of them, there seemed to be no connection to whether they will have resources to support them, or how they are building resources. This is very disturbing since about half have no employer plans, and many of those with employers do not know how much they will need and whether they are on track for adequate resources in retirement.
• Some of the lower income group members expressed a belief in higher risk investment strategies including cryptocurrencies and purchasing investment real estate. It seems very likely that their opinions are formed without being familiar with accepted information about common investment strategies.
• Most of the participants did not believe Social Security will be there for them—although they had not researched their benefit availability. However, they did believe Medicare would be there. When Social Security funding was explained to them, they became more aware of the long-term outlook for Social Security benefits.

All of this information provides indications of opportunities for various stakeholders to help some individuals improve their retirement outcomes. Additional articles will provide more information on how individuals say they are planning and managing retirement as a part of their lives and on SOA resources to help deal with these opportunities.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.

Anna M. Rappaport, FSA, serves as chairperson of the Committee on Post-Retirement Needs and Risks. She can be reached at anna.rappaport@gmail.com.