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How to Optimize Retirement Plan Design for Your Client



This infographic is available as a poster.

Retirement Plan Design

Retirement Plan Design

This infographic is available as a poster.

How to Optimize Retirement Plan Design for Your Client

More than ever, retirement plans are looking at an employee’s entire retirement picture.

In line with this trend, advisors are offering personalized services to help people reach their goals. But as retirement plans begin to expand their products and services, unidentified gaps remain in employees’ retirement needs.

To help advisors identify these disconnects, this infographic from New York Life Investments shows the key priorities across both employees and their employers to help optimize retirement plan design.

Are People Achieving Their Retirement Vision?

Today, retirement is an issue that can no longer be ignored.

Nearly 70% of Americans say the country faces a retirement crisis and 54% are worried about a financially secure retirement. Making matters worse, the pandemic has led one in three workers to rethink their retirement timeline.

To look deeper into retirement plan design, NYL Investments partnered with RTI Research, surveying 800 people:

  • 500 Plan Participants: Employees with 401(k)/ 403(b) plans
  • 150 Plan Sponsors: Companies offering 401(k) plans
  • 150 Plan Providers: Advisors providing 401(k) services

Here are the results they found.

Preparedness for Retirement

Two structural trends—lack of savings and not having access to a retirement plan at work—are impacting retirement readiness today.

By a significant margin, the survey found that men (45%) feel more prepared for retirement than women (30%), which may be explained by historically higher earnings.

How does retirement preparedness break down by age group?

AgeVery Well PreparedSomewhat PreparedNot Very Well Prepared

On average, 37% of employees felt very prepared. Despite those in their 40s often hitting their highest-earning potential, employees in this age bracket felt the least prepared.

Retirement Plan Features

What aspects of their retirement plan did survey participants feel very satisfied with?

Feature% Who Feel Very SatisfiedSomewhat PreparedNot Very Well Prepared
Employer commitment to retirement preparedness58%23%21%
Plan provider62%44%14%
Plan performance58%41%29%
Ease of account management66%38%28%
Number of investment options given58%53%9%

Compared to other variables, participants felt most satisfied with the ease of account management of their retirement plan along with their plan provider.

Retirement Plan Design: 3 Key Priorities

When it comes to actual planning for retirement, what were the three most important factors among participants?

  • Right balance of growth & risk in portfolio: 84%
  • Saving enough for retirement: 86%
  • Work-life balance: 87%

Interestingly, the importance of work-life balance increased with age.

While 78% of people in their 20s said this was very important, it increased to 92% of people in their 50s. The same pattern emerged for having enough savings for retirement. Over 75% of people in their 20s said this was extremely important. For those in their 50s, this jumped to 96%.

Retirement Plan Design: 3 Gaps

Let’s now look at some of the biggest gaps in retirement plan design. Here is where participants were least satisfied with their plan provider:

Service% Satisfied
Managing the cost of healthcare53%
Having a roadmap to ensure I’m doing the “right thing” to plan for retirement57%
Working to get out of debt67%

As the above findings suggest, not only are participants looking for guidance with their 401(k) investments, they are looking for personal financial advice on managing debt and healthcare costs.

These gaps make sense: the U.S. has the highest healthcare costs in the world, averaging $12,500 per person per year or three times higher than the OECD country average.

The Employer’s Perspective

Let’s now take a look at how employers viewed retirement plan design.

Retirement Plan Design: Key Priorities

Across all firms, what were the three most important factors for their employees?

  • Managing the cost of healthcare: 90%
  • Saving enough for retirement: 85%
  • Work-life balance: 85%

Both employers and employees alike placed saving enough for retirement near the top.

Retirement Plan Design: 3 Gaps

Which services do employers offer the least?

Service% Offered
Working to get out of debt23%
How to access Social Security and other retirement accounts33%
Saving enough for retirement34%

Interestingly, while 85% of employers place saving enough for retirement as a key priority, the vast majority of employers don’t offer these services in retirement plans.

To address these gaps, advisors can create a well-thought-out financial wellness program for employers that bridges the disconnect.

Understanding the Disconnect

Over the last five years, retirement plans that offer advice have risen 44%.

The evidence is clear: employers value providing their employees personalized advice. Here are some key insights on providers, and where the disconnects lie.

Plan Providers: Key Disconnects

While 93% of all plan providers surveyed offer advisory services, just 62% offered services that were educational.

Meanwhile, younger advisors felt employees had stronger financial literacy and knowledge of retirement services compared to more tenured advisors by a wide margin. A similar trend followed for advisors at smaller plan providers versus larger firms.

However, more tenured advisors at larger firms were more likely to offer in-person consultations at the workplace. The same was true for providing employees with information to make more informed investment decisions.

Next, while some of the largest disconnects from participant and employer needs center around managing debt and healthcare costs, the majority of plan providers don’t offer them:

3 Gaps in Providers% Offer Service
Working to get out of debt35%
Managing cost of healthcare29%
Work-life balance34%

Importantly, new opportunities arise when advisors connect with participants and employers in areas that matter most.

Optimizing Retirement Plan Design

When employees and sponsors are active participants in their retirement journey, advisors can provide human-centered advice, personalized skills, and holistic planning models.

Based on the above findings, advisors can strategically enhance retirement plan design to align with participants’ and employers’ financial needs.

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Rising Rates: Why Value Stocks Have Outperformed

During periods of rising interest rates, value stocks have historically outperformed growth. Below, we explain the factors behind this trend.



Value Stocks

This infographic is available as a poster.

The Benefits of Value Stocks in Rising Rate Environments

As investors flock to safety, value stocks have outperformed growth stocks year-to-date amid economic turbulence and rising interest rates.

Owing to their strong fundamentals and cash flows, value stocks may be returning into favor.

In this infographic from New York Life Investments, we illustrate why value stocks offer opportunities in rising rate periods.

Recent Performance

In a matter of two years, the Ukraine war, supply chain shocks, and COVID-19 have led inflation to multi-decade highs.

Amid these complex struggles, value stocks have outperformed significantly.

  • Russell 1000 Value Index: -1.1%
  • Russell 1000 Growth Index: -14.1%
  • S&P 500: -8.4%

As of April 14, 2022

With higher inflation predicted for the medium term, value stocks may be staging a comeback.

As investors look to de-risk their portfolios, many are turning to value stocks, thanks in part to their historical outperformance during inflationary and rising rate periods.

Value vs. Growth: Key Characteristics

As a quick refresher, here are the key distinctions between value stocks and growth stocks.

CharacteristicValue InvestingGrowth Investing
Defining FeaturesCompanies with stronger cash flows, steady income, priced below intrinsic value.Companies with lower cash flows, low (if any) income, strong earnings growth potential.
ValuationUndervalued (low P/E ratios)Overvalued (high P/E ratios)
DividendsMore commonLess common
SectorsFinancials, Energy, Healthcare, IndustrialsTech, Communications, Consumer Discretionary

Cyclical sectors such as financials and energy often benefit when prices increase after an economic contraction.

Since companies earn money in different ways, it is often useful to compare price-to-earning (P/E) ratios within a sector. A P/E ratio is a metric for valuing a company, where a company’s stock price is divided by its earnings per share.

An overvalued company in the tech sector may have a P/E ratio of 100, while the S&P sector average is 24. By contrast, an undervalued healthcare company may have a P/E ratio of 14, lower than the S&P sector average of 16.

When a company is undervalued it means that it’s trading below its intrinsic value.

Value vs. Growth: Performance

Looking back, the previous decade saw the worst performance for value in the last 90 years.

On average, growth outperformed value by 7.8% annually since 2010. However, looking at 10-year periods, value has outperformed growth over every decade since the 1940s.

DecadeValue Outperformance

Average annual performance of Fama and French (“HML”) value factor by decade.
Source: Fama & French via Mercer (Mar 2021)

Now, against economic uncertainty and other structural shifts, the growth and value divergence is beginning to change for the first time in over a decade.

What is Driving Value Stocks?

On a broader level, the following forces have driven outperformance in value stocks and growth stocks.

 Value InvestingGrowth Investing

Broad Market Factors
  • Rising interest rates
  • Market recovery
  • Inflationary environment
  • Long-term earnings track record
  • Low interest rates
  • Bull market
  • Disinflationary environment
  • Rising corporate earnings

So how do these apply today?

In an inflationary (and rising rate) period, current earnings become more valuable and future earnings become less valuable. Typically, “value stocks” are assessed based on their current earnings while “growth stocks” are valued on their future earnings.

Consequently, inflationary periods have tended to favor value stocks and deflationary periods have tended to favor growth stocks. When prices are climbing, companies with actual earnings are potentially better positioned to increase prices and retain profit margins.

At the same time, it is important for investors to avoid value-traps, which are companies trading below value that are in financial duress. To help mitigate this challenge, active investment managers can help identify the appropriate companies.

Sign of the Times

It’s worth noting that this isn’t about value vs. growth. Instead, different styles have performed better at different times. Of course, it’s important for investors to consider a number of variables for their portfolios:

With these in mind, investors can implement the best strategies to help achieve their goals.

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How Rising Interest Rates Impact the Economy and Your Portfolio

The target interest rate could rise more than 3% by 2023. Here’s how rising interest rates impact the economy and your investments.



Line chart showing how inflation has been above the Federal Reserve target in recent months. Rising interest rates can help combat high inflation.

This infographic is available as a poster.

How Rising Interest Rates Impact the Economy and Your Portfolio

The U.S. Federal Reserve has raised rates for the first time in more than three years. From a rock bottom rate set at the onset of COVID-19, the target rate now sits at 0.25-0.50%. This target range is set by the U.S. Federal Reserve to influence the rate U.S. banks use when lending funds to each other overnight.

On top of the recent increase, the Federal Reserve is predicting that the rate will rise substantially over the next few years. For instance, the midpoint of the target range could be as high as 3.6% by 2023. This infographic from New York Life Investments explores how rising interest rates impact the economy and your portfolio.

Interest Rates and the Economy

Why has the target interest rate risen? It’s all related to the goals of America’s central bank.

The Federal Reserve has a twofold mandate: reach maximum employment and maximize price stability. The inflation rate is key to achieving this mandate.

  • If inflation is too low, people may put off spending because they expect prices to fall, consequently weakening the economy.
  • If inflation is too high or volatile, it’s hard for people to plan out their spending and for businesses to set prices.
  • Moderate inflation can help people make informed decisions about saving, borrowing, and investing.

The Federal Reserve targets a 2% inflation rate, as measured by the Personal Consumption Expenditure (PCE) Index, over the long term.

Inflation Is Spiking

In recent months, U.S. inflation has far exceeded the Federal Reserve’s target. For instance, the 12-month PCE rate was 6.1% in January 2022.

In order to bring inflation closer to the 2% target over the long run, the Federal Reserve has raised interest rates. This has historically caused a domino effect that leads to lower inflation.

  1. Federal funds target rate rises
  2. Banks charge households and businesses higher rates on loans
  3. Households and businesses cut back spending and increase savings
  4. Demand for goods and services falls
  5. Companies raise prices more slowly, or lower prices
  6. Inflation drops

Against this backdrop of rising interest rates, how can investors best position their portfolio?

Fixed Income Investments During Rising Interest Rates

The potential for losses with a change in interest rates—known as interest rate risk—affects fixed-income investments most directly.

For example, let’s pretend you bought a zero-coupon bond with a 1-year maturity.

Purchase price$1,000
Interest rate10%
Payment at maturity$1,100
Bond value$1,000

The day after you purchase this bond, the Federal Reserve raises interest rates. Similar bonds in the market now offer $1,110 in one year, equivalent to an 11% interest rate.

A typical investor would not purchase your bond for $1,000 yielding 10% when they can purchase a new bond for the same price that yields 11%. Your bond’s value must drop so that it also offers an 11% return.

Purchase price$1,000
Interest rate11%
Payment at maturity$1,100
Bond value$991

Note: bond value calculated as $1,100 / 1.11 = $991.

The bond has decreased in value by $9 or 0.9%. In this way, rising interest rates can negatively impact the price of existing bonds.

Historical Returns When Rates Rise

Of course, bonds are not the only investments affected by rising interest rates. The table below highlights annualized returns of various asset classes during the last two rate hike periods. They are grouped within the broader categories of fixed income, stocks, and alternative investments.

Asset ClassJun. 2004–
Jul. 2006
Dec. 2015–
Jan. 2019
Bank Loans5.9%5.2%5.5%
Short-Term Bonds2.9%1.1%2.0%
Long-Term Bonds5.6%2.7%4.1%
High-Yield Bonds8.4%7.5%7.9%
Municipal Bonds4.9%2.7%3.8%
Large-Cap Stocks8.1%10.9%9.5%
Large-Cap Value Stocks12.6%9.1%10.8%
Large-Cap Growth Stocks3.8%12.3%8.1%
Ex-U.S. Developed Country Stocks21.5%5.5%13.5%
Global Commodities14.3%0.3%7.3%

Time periods measured from the first Federal Reserve rate hike until one month after the last rate hike, which, on average, is when the effective federal funds rate has tended to stabilize. See graphic for specific indexes used.

In light of this historical performance, there are a few things investors can consider.

Fixed Income
Long-term bonds outperformed short-term bonds during the last two rate hike periods, but had a higher level of risk. Taking risk into consideration, investors may want to diversify their portfolios with a variety of bond durations and maturity lengths.

Growth stocks have outperformed value stocks over the last decade, but this trend doesn’t always hold true during periods of rising interest rates. Investing in U.S. large cap equities overall, which includes both growth and value stocks, has historically had the least risk.

Global commodities had the highest average return, but also had the highest risk. Investors may consider holding a portion of their portfolio in commodities if they have a high risk tolerance.

Weathering Rising Interest Rates

Interest rate hikes have occurred throughout history when the Federal Reserve is aiming to combat inflation.

Diversifying across asset classes, styles, and bond term lengths may increase return potential while helping to manage risk.

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