Comprehensive Financial Wellness, Saving for Retirement & College Financial Planning

On July 13, 2017, Dimensional’s Defined Contribution Annual Conference took place at the Gleacher Center of the University of Chicago Booth School of Business. The audience was primarily plan sponsors, registered investment advisors, institutions, investment consultants and ratings agencies relating to the defined contribution market. During the event, I spoke on a 75-minute panel titled “Comprehensive Financial Wellness.” The goal of the panel was to discuss the key ideas discussed during the event and create a list of actionable takeaways for the attendees. In addition to a moderator of Aaron Borders, Regional Director and Vice President with Dimensional Fund Advisors, the other panelists included:

—    Jade Wood, Well-Being Subject Matter Expert, GALLUP 
—    Meir Statman, Glenn Klimek Professor of Finance, Leave School of Business; and Author of “Finance for Normal People”
—    Mark Singer, President and Founder, Financial Literacy Toolbox; and Author of “The New Financial Wellness”
—    Michael Lane, Head of Strategic Retirement Initiatives and Vice President, Dimensional Fund Advisors

As such, the esteemed panel included thought leaders from a wide array of backgrounds and perspectives including academics, institutional research, consultants and financial service firms. This week’s 529 Insiders article provides an overview of my comments during the panel.

Overview of My Comments:

– College Financial Planning is a Retirement Issue: Student loan debt is draining the ability of many employees to fully participate in their organization’s retirement plans and employee benefits. Additionally, failing to plan for college often results in early distributions from retirement accounts. For example, Roth IRAs is the retirement product of choice to pay for college given the high percentage of parents using those accounts to pay for college. Stated differently, failing to plan for college and retirement together is creating unintended consequences. Therefore comprehensive financial wellness broadens the definition of employer benefits from retirement planning to other benefits such as college financial planning.

– Add College Financial Planning Employer Benefits: Adding corporate benefits that are meaningful to employees will make an impact on their productivity in the workplace and dedication to their employer. While younger employees are typically drawn to firms that provide student loan debt repayment programs such as the recent announcements by PricewaterhouseCoopers, mid-career and late-stage employees typically find value in companies that offer a 529 and matching 529 program to help pay for their own mid-career retraining, or their children’s or grandchildren’s education. Strategic Insight’s research confirms that these programs or others relating to college financial planning will increase the likelihood that non-savers will become college savers, and therefore help families of all income levels in the college financial planning process.

– Biggest Challenges to College Financial Planning: Based on research by Strategic Insight, the top-5 reasons parents are not saving for their children’s college range from parents reporting that they cannot afford to save, over reliance on scholarships, reliance on the student to pay the full bill, prioritization issues and not knowing where to begin. Generally, the top-five categories align with some comments earlier in the day in that parents need to take more responsibility for their own outcome. Employers and advisors have an opportunity to help employees make the transition from non-saver to college saver.

– Redefining Risk May Lead to Success: Converting non-savers to college savers, college savers to 529 users and 529 users to power 529 users will lower the risk of employees being able to achieve their college affordability goals. Employers and advisors have an opportunity to help employees and clients to increase the ability of them to achieve their college financial planning goals by helping them to save and save efficiently over the long-term. Said differently, parents need to start the improvement process with what they have today and make progress over time. Life is a slow progression, and so we need to walk before we run on our way to becoming marathon runners. Help your employees and clients make the first step in the college financial planning process no matter how small the steps may be because one success will create momentum to achieve another and then another.

– Innovations: Based on Strategic Insight’s most recent survey of parents, those that enrolled in 529 plans through the employer channel will find value in better educational materials, more enrollment meetings and enhanced integration of platforms between retirement and college financial planning providers. Furthermore, innovative employers are providing student loan repayment programs, 529 matching programs and access to advisors via retainer models to help employees get access to college financial planning advice as part corporate benefits. Therefore, advisors and employers that provide corporate retirement benefits should also provide college financial planning benefits with marketing collateral, enrollment meetings and one-on-one access to advisors.

Therefore, plan advisers and plan sponsors need to actively work together to add college financial planning employee benefits to meet the most pressing needs of their current and target employees and clients. Last but not least, I would like to thank Dimensional Fund Advisors for the invitation and my fellow panelists for the educational and engaging discussion. Have the college financial planning discussion with your clients today.