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Given today's economic uncertainty, what are some adjustments you can make to your retirement plan if you're in your 40s and 50s? Well, here to talk with me about that is Chris Littlefield. He is the president of retirement income Solutions at Principal. Chris, welcome.

Thank you, Bob. Appreciate it. Thanks for having me.

It's a pleasure to have you here and it will be a pleasure to have you answer the very first question I posed, which is, given today's economic landscape, the uncertainty that people are facing, what are some adjustments, the most impactful adjustments that people, especially in their 40s and 50s, who have some time to make adjustments, can start making with their retirement plan today?

Yeah, you know, I think,I think obviously with the uncertainty, the market volatility, I, I, I think there's, you know, the people that have got a financial plan and should stick to their financial plan and not overreact to what's happening at the market at any particular time.For those who don't have them, they should, they should get a plan. They should be working with somebody. And obviously, there's lots of ways for people and Americans in the workplace to get advice. They can either speak to their employer, the retirement plan service provider, or they can also speak with an advisor. You know, I think, you know, everybody would benefit from some advice and holistic advice about how to address uh the needs that they have in retirement.Uh, but I, I think, you know, if you've got a good plan and you're saving regularly, I think the one, the biggest mistake that I see people make is they try to market time. They either try to make adjustments in their asset allocations, and the challenge with that is there's two decisions that you make. It's one thing to sell, but you also have to figure out when to buy.And when people are making these decisions, if you're out of the market in the first couple days after the market rebounds, you miss a very large percentage of the returns. So if you've got a good asset allocation, you've got a good plan of savings, stay the course. Don't let the short term news affect what is a long term horizon.If you're in your 40s and 50s, particularly if you're older than 50, take advantage of all the opportunities to save on a tax-free basis in your 401k plan and make sure that if you can afford to do so, make those catch up contributions. There are significant opportunities for you once you achieve the age of 50 to save even more than the limits that are provided by the 401k plan. So, you know, I think it's just really important for people to have a plan.Get some advice because confidence is increased as they talk to somebody, and, and don't overreact to market volatility they may experiencefrom time to time.

Yeah, so when you think about having a plan, I sometimes think that having an investment policy statement is the plan to have, especially when we talk about saving for or living in retirement.And I just went through this exercise. I serve on my town's retirement board. We managed $100 million and we just yesterday approved our investment policy statement for this $100 million retirement plan. And what we have is, uh, an asset allocation, some in large cap stocks, some in mid caps, some in small caps, some in international, some in bonds and government bonds, etc. etc.And then we have bands around which we say we will rebalance if things get overweighted or underweighted. And you know, do individuals need that kind of sophistication with their with their plan uh investment policy statement that says this is how much I'll allocate to this sort of investment and this is when I'll rebalance given these uh uh limits I have on, on my asset allocation.

Yeah, I mean, I obviously it's a best practice, but very few of us are equipped to do that on our own, right? But I think that's where the professional advice that you get in something like a target date fund uh provides exactly that. It allows you to have professional asset allocation, a rebalancing, uh, over time, and exposure to a lot of different asset classes. You can also get that through a managed account vehicle as well, which is a vehicle where you have somebody who's advising on the asset allocation is helping you with the rebalancing.So I think an individual needs it? Yes, ideally, but there have been innovations in the industry, particularly in the retirement space, like a target date fund that actually offer that in a very simple turnkey way that most people can connect with, as opposed to coming up with their own IPS or investment policy statement, figuring out what their weightings are, what their tolerance is, they have too much equity, it's not enough. A lot of that, most Americans.Just overwhelms them. And so it's easier to go into something like a target date fund that does thatfor them. Yeah.

I, I'm curious, Chris. I, I often think that for people in their 20s and 30s, where perhaps their finances aren't that complicated, the target date fund works perfectly fine, but maybe as you get into your 40s and 50s, uh, a managed account may be the more appropriate solution. Maybe talk a little bit about the pros and cons of each approach and, and how you might transition from, say, target date funds to a managed account.

Yeah, and that's a great question, Bob, and sort of you've seen some innovation in the industry. So let's just talk about generally, the target date fund works very well over a long term, but the, but one of the challenges, one of the criticism of target dates, it really only uses age, right, and to define your asset allocation. So more equity heavy in your early years as you get close to retirement, they add additional more fixed income.Take some of that risk away, uh, as you get close to retirement. And that, that has worked really, really well. What we're seeing, uh, people innovate now and uh certainly Principals, one of the people that are that are coming up with these innovations is a more personalized targetta that uses factors in addition to age. And so we can look at at the right data we have if you've got a defined benefit, benefit, if you've gotA lifetime annuity already, your exposure to equities can be higher than somebody who may not have a guaranteed income option. So there's a way to personalize that. And the same thing happens in a managed account. It's able to have an advisor that sort of looks at you, your personal circumstances, your personal needs for income, or what your own financial goals and obligations are, and being able to tailor an asset allocation for you.The interesting thing you're seeing in target date now is you're also seeing what what people are calling hybrid target dates, right? Target date fun until you reach the age of 40 or 45 or 50, and then it's converts to a managed account option. So you have an asset all asset asset accumulation for 2025 years. But then when you get starting close to when you might need to start planning for retirement, it gets you into more personalized, it takes into account your individual.Circumstance as opposed to just your age. And I think that's been a really uh significant uh uh approach. Now there is a cost difference to that. There is a cost for providing that advice, but in many cases we see the people that pair up a target date fund with the managed account have better overall retirement income outcomes because that managed account is able to be personalized for their specific and uniquecircumstances. Yeah,

if I think about one of the historic sort of shortcomings.Shortcomings of plan providers is this notion of that you have eyes on someone's defined contribution or 401k plan, but maybe not on their other assets, maybe, maybe they have rental income from a uh an apartment that they own. Maybe they have a lot of um uh stock from the company that they work at or maybe they have a lot of money in a taxable account. But so being able to have eyes on all their assets is really important as you think about building a plan that works for them.

Yeah, I, I think that's right, Bob, and I think what we're seeing in the workplace in particular is for a long time people were OK with getting sort of retirement savings advice because they were really focused on accumulation. It was like, OK, how much should I be setting aside and how much should I save?And what we've seen with this wave of people that are retiring is, wait, now I'm ready to turn that accumulated savings into some sort of income for life. How do I think about that? How do I think about my asset allocation differently? And how do I think about it more holistically? So what we've seen is a switch in a demand from employers and employees around notJust retirement advice, but more holistic financial advice. Like, what do, how do I handle my debt? How do I deal with dependent care, whether that's an adult child, a child with special needs, a parent? How, how do I handle all of these potential challenges that come my way in the course of life, and being able to provide more holistic advice than just, hey, how much should I say? How how should I allocate myThat's, that's great for accumulation. When it comes to actually the spend down or the decumulation phase on your lifetime, it's much more personalized and everybody's circumstances are sounique.

Yeah, increasingly, it seems like plan sponsors are being noticed for having uh advice delivered in the workplace as sort of a cutting edge feature of 401k plans. Is that something that youSort of would recommend or see that the future is one in which we deliver personalized advice, you know, boots on the ground, either in person or virtually by a human.

I, I think so, yes, and, and so I think there's been a change, certainly over the last 10 years in terms of, there's a period of time when plant sponsors would sort of say, we don't actually want you talking to our employees or or giving them advice. We want you just sort of just do the record keeping and don't talk to them about the advice. You know challenge there's there's a demand pull from employees that said, I need help. I want help. INeed to feel more financially secure. Otherwise, I'm not going to be as productive in the workplace because I've got all of these challenges. And so we've really seen, probably starting in the large market first and then migrating down to smaller employers is there is definitely a recognition by employers that their people need help, that they need to be able to provide them that help, otherwise they're going to be more distracted with their own personal situations and may actually leave the.Workplace. Um, and so this demand is coming from employees, and many more, I'm not sure I'd call it a cutting edge benefit. I think it's becoming much more common. I, I would say in the large market first, but what generally tends to happen in the larger employers tends to migrate down over time. So I would expect to see those more advice offerings happening, uh, more broadly over the next severalyears.

So, Chris, you mentionedThe word challenges, I think one of the challenges that people face when they're planning for retirement is this notion of competing demands. They may be paying down debt, a home equity line of credit or student loans or credit card debts or auto loans at the same time that they're saving for retirement and it's always an interesting debate which should I pay down my debt or save for retirement, both a little of this or a little of that. Do you have thoughts on that?Yeah, you know,

it's really hard to provide a a general rule on that just because everybody's circumstance is different. The interest rates that they may be charging if it's heavy consumer debt could cause you to want to pay down the debt faster than saving for a time. There's a lot of factors that go into it. What I would say is, it's really, it's really important for people to take a balanced approach to their financial wellness, and not focus on any one particular goal, because if you've gotDebt, you've got to manage your debt. If you've got retirement savings, you got to deal with that. And you've also got to save for potential future healthcare or dependent care obligations. So I think our, our view has generally been, it's, it's better for one person to seek the advice and get advice that they need because their circumstances are so individualized. But secondly, take a balanced approach and just don't focus on any one thing. We see in the past many people that have focused onUh, for example, saving heavily for college for their children, right? And that's their sole focus. And then when the children are out of the house in their mid to late 40s or early 50s, they start wondering, OK, now I've got to start saving for retirement. Well, by then you've lost all the opportunity to save, you've lost the power of the time value money and it's really hard to catch up at that point, which is why again, we believe a more balanced.Approach to dealing with debt, all of your obligations, and not postponing retirement, given the power of the time value of money over a long time is really important.Yeah.

So you mentioned maybe one mistake that people make. Can you talk about other mistakes that people make and how they can avoid them or correct them?

You know, not taking advantage of the tax-free nature and the tax benefits there exist to them in their, in their workplace retirement plans. You know, we still see about roughly in the industry a little bit over 50% participation rates. It changes depending on the type of employer, but broadly. And so there's certainly is a percentage of population that that just has a hard time meeting their daily activities. There's a lot of people that just aren't participating.And I think that that challenge has been recognized and was recognized in the most recent legislation, the Secure 2.0 that was passed just a couple of years ago, to sort of now require mandatory enrollment in automatic enrollment in retirement plans as an an employer sponsored part uh employer sponsored retirement plans.They can always default out if they want, but we've seen in our data, Bob, that when you're automatically enrolled in a plan, about 90% of the people stay in the plan. So you do have about a 10% that will opt out, but all of those things that we're learning about human behavior, but participating in the plans, taking advantage, even withoutThe match, and you know, the ability to save on a tax deferred basis is powerful. Uh, and so, you know, not before you even talk about the ability to maximize an employer match. So we see a lot of people, I mean, 50% across the industry of people, a little, maybe a little less than 50%, are not participating at all, and that that's a challenge.

So, uh, Chris, one of the questions that I think financial advisors get most commonly, especially from people who are on retirement's doorstep isAm I financially ready for retirement? And, and oftentimes if they don't have an advisor, maybe they're relying on some rule of thumb like I need 10 to 12 times, uh, my salary set aside in my retirement nest egg to make sure that I can fund the 30 years or 35 years of retirement. Uh, what's your thought on how folks, uh, ought to determine if they have enough?

Yeah,um, you know, it's interesting, you know, we, we recently, uh, conducted a survey where we had people expressing a great deal of confidence in their readiness for retirement, over 60% expressed a, a, a comfort and a confidence in their retirement. But then when we asked them, like, how much do you think you'll need to save for retirement, they were way off in their in their recognition of, well, I might, I, I think we had over 60% of the people answered that they thought they needed 30 times their salary.Uh, to save and retire, which would be wonderful if you can do it, but the general industry standards, somewhere in the 10 to 12 range, uh, is gonna be sufficient when you add in the benefits of Social Security that will be able to be able to replace your income in retirement.So, so, you know, again, you know, I think if people can get to, you know, 12 times uh their their annual salary, they should be relatively comfortable. We try to encourage participants to find a way to try to save at least 15%.Of their of their pre-tax income, uh, you know, in for retirement, that would include the employer match. So there's many people that can achieve that. We've seen a number of people on our plans have been able to achieve that level, but, but it's difficult. Not everybody, not everybody can getthere.

Yeah.So, uh, in the second half of our show today, Chris, I want to talk about the living and retirement phase, but as you think about the planning for retirement, are there some things that we haven't touched on that you think would be important for people who are in that stage of life to think about?I,

I think theonly thing I would touch on is that, you know, oftentimes, uh, we're sitting here talking about it as though it's a financial exercise.And what we've learned pretty clearly, and I certainly you've had guests that have talked about it as well, it's more than just a financial exercise. It's a, it's a, it's a change in life, it's a psychological, it's a social, it's an emotional, and oftentimes those factors get de-emphasized while people focus on the dollar amounts and the income, without taking into account how your life changes when you decide to sort of go do something else. andWe've certainly seen, and I think you've had other guests talk about this increase in phased retirement. People are unretiring, people are coming back. They may not want the full 9 to 5 corporate job, but they are finding ways to find purpose and meaning in their day to day lives, uh, you know, that you have the Japanese, you know, notion of Iy guy, right? What is their purpose? What is their meaning? What's going to give them that reason to wake up in the morning beyond just having enough money tolive.

Yeah. It's so interesting when we talk to, you know, you and other guests that we've had on the show, there's always this notion that people want to retire the term retirement because it doesn't mean what it used to, right? Because people have oncore careers or second careers or they're doing volunteer work or whatever the case may be, but it's not that classic image of sitting in a rocking chair, uh, reading the evening newspaper

or the two people sitting in on the what looks like beach chairs.On the graphic to your your bob games, right, right, that's one view of retirement, but I think we that most people that may not necessarily be their picture of retirement, that they, they want to go do different things and find that sense ofpurpose and meaning.

Chris, we're gonna take a short break and when we come back, we'll talk more about living in retirement and some other things like Social Security and how to convert your assets into uh income. So don't go away.Welcome back to Decoding Retirement. I'm speaking with Chris Littlefield. He is the president of retirement income Solutions at Principal. Chris, when we left off, I promised that we would talk about how people can protect their retirement savings against different kinds of risks that they might face in retirement, specifically inflation and longevity.

Thoughts?Yeah, thanks Bob. You know, um, this, that is the that is the seminal challenge for for people to deal with the life cycle risks in in retirement. I think, you know, I, I think there's aThere's no easy answers, but there's lots of different tools for people to use, whether they want to look at tips, uh, treasury with inflation protection, if they want to look at annuities, more and more annuity options or having some sort of cost of living adjustment in them. If they want to look at some sort of combination of equity and fixed, uh, fixed income portfolio that helps, uh, you know, the equities can help uh fight uh the impacts of inflation on their portfolios, assuming.returns are good. I, I think there's a lot. There's just, uh, that is the challenge and staying exposed to equities, I think it is going to be important. The people, I think the people that convert everything to a fixed income annuity with no adjustment or everything to fixed income, I think that's really challenging over the long term. So again, I probably say a balanced approach, talking with your advisor about the different tools that are available for them to deal with inflation.

Yeah. So when you think about converting retirement savings into sustainable income, I think of it this way, that what you want is reliable income, sustainable income to maybe at least match, if nothing else, your essential expenses. And if you have more than enough, maybe you don't need more sustainable income. But you, can you talk a little bit about like how people should think about that question of converting assets into sustainable income?

Yeah, and that's, and that's the, that's the challenge that we have right now, right? Because we've done a fantastic job on accumulation for a lot of Americans. What we haven't done is train people how to turn and accumulated savings into lifetime, uh, into lifetime income. I, I think, you know, again, I'm, I'm not a CFP. I think you're a CFP, Bob, um, but so, uh, you know, I would say I think essential expenses are the start.But, you know, a lot of people might have dependent care obligations, obligations for a parent. Um, there are a lot of factors that go into how much income they're going to need, and it really is highly individualized. I do believe that the industry is coming up with many more innovations about how to get people lifetime lifetime.Guaranteed income annuities is one, you know, we've had annuities in a safe harbor bridge for implant annuities and retirement plans for a long time. The takeup is still not very high because of the fiduciary risks about plant sponsors having to pick one or a couple. But I do think that you're seeing is you're starting to seeing them being built into target date funds.And I think that is the way that that we're gonna solve this problem. We're essentially we're we're essentially recreating all the benefits of BB automatic enrollment, professional investment advice, and lifetime distribution income.In DC plans with auto enrollment, professional advice through target date funds, the last horizon that we haven't yet figured out and solved for Americans is how to convert their retirement savings into lifetime income.

Yeah, um, so last question, uh, everyone is talking about Social Security these days, and what role do you see it playing in someone's retirement income plan and given theSort of the state of affairs with Social Security, how dependable do you think it will be for folks today and tomorrow?

Yeah.You know, I, I, I, I, I believe Social Security will be there. I think if you're at the beginning of your career, you might have a little bit more concern about what Social Security might look like in, you know, 30, 40 years, but I, I think Social Security is, is a benefit that will be there for a long time. When we talk about Social Security going bankrupt, we're talking about Social Security trust fund, it's about 25% of the payments overall. So I, I, I think there's a lot of social need and weWe do have a retirement crisis in the, in the US where people just haven't saved enough for retirement. And it's hard for me to imagine that there won't be some benefit there. But I think it's not wise to only rely on Social Security, particularly at higher income levels because Social Security won't be enough to replace the income that you've experienced pre-retirement for people that at higher income levels. But I, I, I believe there's a lot ofSupport for some sort of social security system. You might see things like means testing or other things come in as we get down over the next decade, as we get closer to the trust fund being uh depleted, uh, but I, I, I think we believe Social Security will be around as a program for quite sometime.

Yeah, you, you mentioned that Social Security is a smaller percentage of someone's retirement income if they're in a higher income quintile.And I think my research shows that somewhere around 15% is what Social Security represents in terms of retirement income for someone in an upper income category. So it's not a lot, but it's certainly not nothing either. So, right. So Chris, uh, uh, we've run out of time unfortunately, and I want to thank you for sharing your knowledge and wisdom with me and our viewers. It's so greatly appreciated and with hope you'll come back on a future episode, we'll talk more about my favorite topic, retirement.

I would love to. Thank you and and thanks for this podcast, but it was a great, it's a great opportunity to talk aboutthese issues.

Yeah, thank you so much, Chris. So that wraps up this episode of Decoding retirement. We hope we provided you with some actual advice to help you plan for or live in retirement. And don't forget, for the latest retirement news and expert analysis, check out Yahoo Finance.com.

This content was not intended to be financial advice and should not be used as a substitute for professional financial services.