Investors Worried, Perhaps Rightly, About Retirement

Advisors say their clients take an unrealistic view of future income needs, survey says

Advisors are worried that their clients aren’t looking at retirement realistically. Russell Investments’ quarterly Financial Professional Outlook survey, released Wednesday, found advisors think 54% of their clients have unrealistic expectations about retirement income.

Another survey, from TD Ameritrade, found that half of Americans are not looking forward to retirement.

Retirement income is a common topic between advisors and clients. Thirty-eight percent of advisors said they initiated a conversation about their clients running out of money, and 34% of said their clients brought it up.

Advisors' confidence in retirement income planningFor most advisors, their clients’ unrealistic expectations are the result of incorrectly estimating how much they’ll need in retirement (61%), but over half said information from unprofessional sources like friends and family, and the Internet, were also part of the problem. Half said their clients just didn’t understand how their current spending and saving patterns could affect their retirement.

While 72% of advisors surveyed said retirement income planning is a core part of their practice and 98% are dedicated to becoming experts, they have different strategies for building their expertise. More than two-thirds are using books and online resources, while just 45% are taking accredited courses on the subject. Over half turn to their industry peers for help and 49% are talking to fund companies.

“Most advisors are trying to tackle the retirement income challenge, but many feel the investment industry has not provided the right tools to set a standard for how this should be done,” Phill Rogerson, managing director of consulting and product development for Russell’s U.S. advisor-sold business, said in a statement. “Investing to produce sustainable retirement income and maintain some level of flexibility is a very different challenge than investing and saving for retirement—and advisors are clearly struggling to find the best way to do this.”

The most common strategies for answering the retirement income question were a diversified portfolio of mutual funds. Three-quarters of advisors said they frequently or always recommend that strategy. Sixty-four percent recommend dividend-paying equity funds and 51% recommend bond funds.

Russell conducted its survey between April 24 and May 11 among 353 advisors at 122 firms. Advisors were not required to have a relationship with Russell to participate.

Another survey released Wednesday supported Russell’s conclusion that investors are facing difficulty with retirement income. TD Ameritrade found half of Americans aren’t looking forward to retirement. Of those, 30% say it’s because they won’t have enough saved in time.

The survey cited data from the Federal Reserve Board's Survey of Consumer Finances that found the median net worth of the American family dropped 39% between 2007 and 2010.

Nearly three-quarters of respondents said they wouldn't be able to save enough for retirement due to a lack of steady employment, debt, education or health care expenses. Most have no savings goal (69%), and those who do are setting their sights too low. The average savings goal was just $750,000, regardless of age. Even with those low savings goals, just 54% are confident they’ll make it.

"There's no doubt the economic climate in recent years has presented significant challenges for those planning ahead and saving for retirement," Lule Demmissie, managing director of investment products and retirement at TD Ameritrade, said in a statement. "[The] key is to focus not on what you can't do, but rather what you can. Consider how you navigate challenging issues and move past them to achieve your financial goals."

On average, respondents expect their retirement will last between 18 and 22 years, but TD Ameritrade predicts they will need income for between 20 and 25 years. Eighty percent of respondents expect to continue working in retirement, the same percentage that thinks they will need the same amount in retirement that they currently live on.

Of respondents who are already retired, a quarter said they had to go back to work and a third said they had to change their lifestyle after retirement. Their advice to younger generations is to save a lot and start early, establish a financial plan, limit expenses and work longer. On average, respondents agreed that they should have started saving eight years earlier.

The survey broke down the psychology of each generation into four categories:

  • Matures (Those born between 1930 and 1945). The survey called this generation “proud, satisfied and positive.” Although half said they had to make cutbacks or lifestyle changes in retirement, they fear retirement the least and are the most content compared to younger generations.
  • Baby Boomers (Those born between 1946 and 1964). Boomers are “anxious and regretful,” according to TD Ameritrade. They’re looking forward to retirement more than any other generation, but they expect their financial situation in retirement will be worse than it is now.
  • Gen X (Those born between 1965 and 1976). This generation is “embarrassed, frustrated and envious.” They lack confidence in their retirement savings approach and are the least confident generation about reaching their goals.
  • Gen Y (Those born between 1977 and 1989). Those darn kids; TD Ameritrade calls this generation “disinterested and lacking control.” Admittedly, retirement is still far away for this generation, which is the reason for those negative feelings. However, they are more optimistic than other generations and expect their financial state in retirement will be better than it is now.

TD Ameritrade surveyed in March more than 2,000 adults born between 1930 and 1989. Respondents were evenly split among the mature generation (between ages 67 and 82), boomers (ages 48 to 68), Gen X (ages 36 to 47) and Gen Y (ages 23 to 46).

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