Americans Financially Unprepared for Long Lives

Many Americans take informal approach to financial planning

Just 56% of Americans are financially prepared to live to age 75, a survey released Wednesday by Northwestern Mutual found. However, as the company points out, the Centers for Disease Control and Prevention report that life expectancy in the United States is close to 80 years and could reach 87 years by 2050.

Just 46% of Americans say they are financially prepared to live to 85 and 36% say they could support themselves should they reach age 95.

"With longevity comes an increased need to proactively manage your personal finances, which includes a solid risk management strategy,” Greg Oberland, executive vice president for Northwestern Mutual, said in a press release. “No matter what age you'll live to, it's important to protect the dollars you'll eventually depend on to provide an income in your retirement years."

Surprisingly, young investors feel even more unprepared than older investors. Less than half say they are prepared to live to 75 and 37% say they could live to 85. Just 29% say they are financially prepared to live to 95.

“What we’re seeing here is that the economic downturn served as a wake-up call for all generations,” Oberland told AdvisorOne on Monday. “For younger Americans, it resulted in heightened awareness that they may not see the double-digit returns over time that older generations did. In our prior research, we have also observed that younger Americans are more prudent in their approach to savings and managing risk. Taken together, it’s evident that the message has resonated and they appreciate the need to plan long-term.”

Women, who the CDC calculates have an average life span of 80 years, are significantly less prepared for retirement than men, the survey found.

Part of the problem may be that many Americans are too casual about financial planning, the report found. In an earlier series of the report, released April 18, Northwestern found almost half of Americans say they have an informal approach to financial planning, if they have a plan at all. Fifty-nine percent admit they need to be better at planning.

“Planning is like a roadmap that helps people stay on course,” Oberland says. “Our advisors take the time to educate their clients and explain the long term benefits of financial planning, which is not unlike the role a fitness coach or nutritionist plays in your personal health. It’s about helping clients understand that planning leads to better outcomes.”

While over a third of respondents said that when it comes to investing, “slow and steady wins the race,” 21% admitted they had a lot of catching up to do. In spite of that, 40% of respondents said they favor investments that are safer, but have lower returns. Just one-quarter said they prefer the higher returns of riskier investments.

“Clearly, the role of the advisor is more important today than ever,” Oberland says. “What the study tells us is that the most common barriers to improving financial planning are time, confusion, interest and lack of the right help. It’s up to the advisor to take the time to educate, counsel and guide clients about solutions tailored to their individual needs.”

This picture of American investors may be bleak, but they appear to have a handle on basic money management. Sixty-two percent are paying down debt, and 61% are developing a budget. Fifty-eight percent save a portion of their paycheck every month and 56% save and organize their financial documents.

Both surveys are part of Northwestern Mutual’s State of Planning in America series. The survey was conducted online by Ipsos among 1,015 Americans over age 25, and was conducted in early February.

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