For 401(k) savers, words matter

Getting 401(k) participants to engage with their plans might have a lot to do with language — some words resonate with savers and others fall flat, according to new research from Invesco.

“Fund,” for example, doesn’t mean much, but “portfolio” is better understood, the investment provider found, after surveying about 1,000 U.S. plan participants. Fifty-three percent of people preferred the latter, while 35% said they better understood the former, and 12% pointed to the word “strategy” as the best way to describe their 401(k) investments, according to Invesco. In general, people showed a preference for goals-based descriptors that at least give the perception that they have control over their investments.

The company worked with corporate language consulting and research firm Maslansky and Partners for its study.

When it comes to retirement income, people also have preferences. Eighty-eight percent said “income” is the best to describe it, while 61% said the same for “payments” and 48% pointed to “payouts” (respondents could choose three words). Meanwhile, only 38% favored retirement “paychecks,” according to Invesco.

Further, the term “investment risk” did not have a positive connotation. About a quarter of people said it only indicated a high level of risk, while less than two-thirds said it could mean any level of risk and less than 10% said it meant low risk. Nearly two-thirds linked the term with “potential for loss,” while just over a third pointed to “potential for gain.”

Invesco also conducted focus groups to test different words and phrases.

“Plan sponsors and the industry must re-think the approach to plan design, investment menu construction and communications strategy as participants shift their mindset from retirement savings to retirement income,” Greg Jenkins, head of institutional defined contribution at Invesco, said in the company’s announcement. “When we asked participants what goal they were looking to achieve, six in 10 would rather achieve ‘retirement income’ vs. ‘retirement savings.’ What’s most interesting is that 50% of millennials and 58% of Gen X were focused on generating retirement income to support their vision of retirement.”

However, a significant proportion of 401(k) savers — 39% — said they were unaware of their plans’ options for dealing with assets when they retire. More than a third of millennials and nearly a quarter of Gen Xers said employers should start talking with them about retirement income options before age 45, according to the survey.