In less than five years, 25% of the American workforce will be over the age of 55 and, although they represent small numbers overall, the 65-74 year old and 75+ age groups are projected to grow more than four times faster than any other age group. People are living longer, and with so much angst about running out of money in retirement, a natural response is to work longer.

Employers are having a hard time understanding these new patterns, as are employees.  According to a white paper from Willis Towers Watson, 69% of employees hope that employers will make working past traditional retirement age easier, while “55% of employees over 50 expressed a desire to retire as soon as they can afford to.”

The 401(k) model has failed to provide participants with a clear understanding of what they need to do to retire comfortably.  Because it’s just a savings account, the 401(k) doesn’t answer questions about income like pensions did.  So employees aren’t sure how much to save, how to invest properly, how much retirement will cost, or even what complementary vehicles might offer to make their savings more effective.

Since lawsuits are a favorite American sport, employers are forced to focus on their fiduciary obligations within the plan, largely pointing to funds, fees, and compliance.  The employer’s responsibility is not to create relevant, effective, and understandable plans, but rather to offer a plan they can defend in court as legally responsible.

This is starting to change.  There are numerous vehicles showing the costs of delayed retirement and financial precarity in the workforce, and employers’ response has largely been an education initiative.  That’s a fine start, but it’s not enough.

Employees need clear, personalized, actionable advice.  This won’t come from the plan provider, because their incentive is to have more dollars in the plan.  They need a coach that can deconstruct what the 401(k) can and cannot do, and how they can build a reliable retirement income that feels less like a question mark attached to the end of a number.

Uncertainty creates inefficiency.  The 401(k) model is centered around assets that provide historically great long term benefits (stocks and bonds) but have volatile short and even medium term fluctuations.  Consider this: two 401(k) accounts with the same value are worth drastically different amounts of safe retirement income based on how the market is behaving when you retire.  Did you retire in 2000?  You just took a big pay cut for the rest of your life due to market conditions.  Did you retire in 1983?  Welcome to the party!  You can safely take far more income from your account.

Understanding how benefits work and what compliments can increase the effectiveness of savings requires personalized advice.  The right plan for each individual is dependent on factors like health, personal values, spending habits, and family structure.  A retirement plan whose client is the employer—not the employee—is limited by law and scope to reduce the employer liability instead of maximizing effectiveness for the employee.  Better pre-retirement benefits, more options, and, most importantly, a coach to help employees make changes is the path to helping more employees retire on time and more comfortably.

[1] Bureau of Labor Statistics, “Older Workers: Labor Force Trends and Career Options,” Career Outlook

[2] Ibid