From the May 2008 issue of Investment Advisor • Subscribe!

May 1, 2008

Ahead of the Game

BofA research reveals the affluent are ready for retirement

Many affluent Americans are addressing economic uncertainty by modifying expenses in the short term, and maintaining retirement investing for the long term, according to new research from Bank of America. The telephone survey conducted by Braun Research in mid-March, which polled 1,000 Americans--750 nationally representative Americans, and 250 individuals with investable assets between $100,000 and $3 million--explored retirement planning and funding, spending and saving in the current economy, and retirement savings literacy. Results found that 57% of the mass affluent are changing their spending habits based on current market conditions, including spending less on vacations (48%) and shopping (45%). What's interesting is that 73% of the respondents have not reallocated their retirement investments. "Our survey confirms that consumer spending is tightening, contributing to the country's economic downturn," said Lynn Reaser, economist and retirement strategist, Bank of America, in a statement. "The best way to protect retirement savings in volatile times is to remain diversified and maintain a long-term perspective," she added. For the 27% of affluent Americans that have changed the allocation of their retirement investments, 33% reduced investments in stocks, 37% have moved investments to fixed income, and 31% reallocated retirement funds for other purposes.

Vague Retirement Vehicles

At a time when the need for retirement planning has never been greater for individuals and families, a major roadblock exists for many Americans around starting and eventually navigating through the process, according to the survey. The research found that affluent Americans are more familiar with retirement products than the general population, with 84% reporting they are familiar with traditional IRAs and 62% reporting they are familiar with Roth IRAs. Still, only 56% currently incorporate an IRA into their retirement planning. Additionally, while affluent Americans are more likely to have an IRA than the general population, they are no more likely to fund it annually. The survey revealed that only 43% of both affluent Americans and the general public with IRAs fund them on a yearly basis. And while affluent Americans experience fewer obstacles during their retirement planning journey, they do share similar frustrations with the general public. Roughly 33% of affluent Americans reported difficulty in identifying appropriate retirement investments, 24% struggle with knowing how much they will need to retire comfortably, and 24% also have a problem determining how to set aside the savings. This compares to 42%, 40%, and 29% respectively for the general consumer market surveyed.

"Americans clearly need guidance and education regarding how much of their pre-tax annual income they will need to maintain a similar lifestyle in retirement," said Dan McNamara, retirement products group executive, Bank of America, in a statement. "A 401(k), 403(b), pension plan, IRA or Social Security is typically not enough to enable individuals to reach their retirement goals."

Retirement Ready

The good news, though, is that the affluent Americans surveyed are staying on top of their retirement savings. Thirty-seven percent believe they are "on track" when it comes to saving, while 24% said they are "ahead of schedule." In fact, only 9% noted that they have not started yet. Of those mass affluent that have been building a nest egg, most started between the ages of 25-34 (39%). Also, the affluent Americans surveyed have a lot of plans for the later years of life--66% plan to spend more time with family and friends, 53% plan to vacation, 49% of those surveyed have decided to volunteer in retirement, and 18% want to start another career. When it comes to Boomers, 32% of the 318 that were surveyed say they are "on track" with their retirement savings and 54% participate in the company-sponsored 401(k) plan. Meanwhile 50% of all Boomers interviewed have an IRA, while 63% of affluent Boomers have an IRA.

Gender Differences

When it comes to gender differences, it seems more women find difficulty with retirement-related issues than men, according to the survey. Thirty percent of women claim they are "late, but gaining ground" in retirement planning efforts versus 20% of men, and 29% of woman find determining the appropriate retirement investments the greatest challenge to retirement planning verses 19% of men. Women are also more concerned about a presidential candidate's position on Social Security (74%) than men (60%). And when it comes to the mass affluent and politics, 81% say a presidential candidate's position on the economy is in their voting decision, while 60% says Social Security was a main voting factor for them.


E-mail Staff Editor Kara P. Stapleton at kstapleton@investmentadvisor.com.

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