Senators Want Workers to Get More Financial Advice

Senators are still thinking about ways to help Americans get more and better help with retirement income planning.

They say they want to make sure the advice comes from trustworthy people, without hidden conflicts of interest, but is also affordable.

The topic came up last week at a hearing the Senate Special Committee on Aging held to address financial literacy and in a new bipartisan committee report on financial literacy.

Sen. Bob Casey, D-Pa., the committee chairman, opened the hearing by pointing out that 11,000 Americans are turning 65 every day, and that many of those people are turning to his own office for help with retirement-related financial concerns.

"Last year, my constituent services team received over 1,000 calls and emails from Pennsylvanians on these issues," Casey said.

Sen. Tim Scott of South Carolina, the ranking Republican on the committee, said that he had spent more than 20 years in the financial services industry himself, and that one challenge was the difficulty of finding the right products.

"Some of the annuities didn't have the lifetime options, so, sometimes you could outlive your money," Scott said.

Gerri Walsh, senior vice president of investor education at FINRA, told Scott that one concern is balancing the need for retirement income with need for ready access to cash.

"When people transition from accumulating to decumulating assets, they have a choice about what they can do with their money," Walsh said. "Some people have a pension. Many Americans rely on Social Security. But if you have accumulated savings in a 401(k) or an IRA, you need to think about what to do with that.

"For many people, having guaranteed income can be critical to being able to meet expenses. So, deciding how much of your portfolio to annuitize, especially if you don't have a very big portfolio, is a huge consideration, with important considerations. It's a key topic"

But Scott had used up the time allocated for him and his questions at the hearing, and the committee had to move on before Walsh could say much about that topic.

Sen. Kirsten Gillibrand, D-N.Y., asked another witness, Cindy Hounsell, about helping young people, especially young women, handle the possibility that they might have to prepare for their own retirement while acting as caregivers.

Hounsell, president and founder of the Women's Institute for a Secure Retirement, or WISER, said potential caregivers need to know how retirement, retirement programs and private retirement planning work as early as possible.

Hounsell said WISER runs annual essay contests for college students, seeking ideas about how to change retirement programs.

"Over and over again, they tell us the same thing: They had no idea about any of these programs," Hounsell said. "They have no idea what anything entails. And yet, they see their grandparents struggling, many of them, and that's where they get their learning experience. Basically, they don't want to end up in that situation when they are older."

The Committee Report

Members of the Senate Special Committee on Aging tend to take a cordial, bipartisan approach to their activities, and they were able to release their financial literacy report as a bipartisan report.

The committee argues in its new financial literacy report that lack of financial literacy is one of the major obstacles to Americans' post-retirement financial security.

"For example, only 43% of adults ages 18 and older are able to correctly answer three questions on a widely used financial literacy assessment," the committee says. "The share of the population that can correctly answer these questions increases with age, but decreases later in life."

The Secure Act now encourages employers to add annuitization options to 401(k) plans.

The committee predicts the provision will lead more workers to face questions about whether to annuitize retirement savings.

"The decision to annuitize is complex and carries budgeting considerations, as well as transaction costs," the committee says. "For example, in order to obtain an annuity that pays an approximate $500 monthly lifetime benefit, a person must pay an upfront premium of roughly $100,000."

The committee lists five focus areas for helping older adults and people with disabilities gain the financial literacy needed to make annuitization decisions.

Understanding retirement risks.
Assessing liquidity needs.
Understanding 401(k) plan provisions.
Avoiding frauds and scams.
Finding financial advice.

In the section on finding financial advice, the committee emphasizes that the decision to buy an annuity can be complicated, "especially if people are considering add-on features, such as death benefits and inflation adjustments."

"Given the complexities of annuities, people may seek, and benefit from, professional advice," the committee says. "Literacy and education efforts should focus on helping people find trusted professional advice, including assessing possible conflicts of interest. This education should also include tips and other resources for how to find low-cost or pro bono quality financial advice."

Gerri Walsh (Photo: FINRA)