As head of LIMRA’s Retirement Research since the end of March, I have been extremely impressed by my colleagues’ dedication to the pursuit of knowledge and their high research standards. So if Bob Clark’s blog on AdvisorOne on July 20 had been a sarcastic commentary on my colleagues’ sometimes hyper-vigilance about methodology, precision, and reliability of data, I would have had to concede the point. These are people who have passionate, on-going debates on things like sample design and statistical significance. To have their credibility and motives questioned, however, is without merit.
The goal of LIMRA’s retirement research is to provide valuable data and insights to our members that will help them better understand issues relating to retirement. Our 2012 research agenda includes projects examining individuals, retirement plan sponsors and providers, as well as financial advisors. This agenda is developed based on the interests of our members, which include insurance companies, advisory firms, asset managers, banks and other financial service organizations. It is also driven by the desire to identify ways to help people save adequately, invest appropriately, and retire with financial security. Ideally, our research will inform solutions that address the looming retirement crisis. We all have a stake in this effort – whether as an insurance company, advisory firm, advisor/blogger, or future retiree.
It is disturbing that only 51% of non-retired people are saving for retirement in a defined contribution plan or an IRA, according to LIMRA research. Moreover, the median value of their retirement savings accounts is only $40,000. While some of the non-savers may be covered by a defined benefit pension plan, such plans are under enormous financial strain. Aside from the huge liability problems, fewer workers are accruing benefits or will enter retirement with significant pension income. Only one fifth of all private-sector workers have access to a defined benefit pension plan at work, according to the Bureau of Labor Statistics.
Pew’s Center on the States found that the gap between state obligations to public employees’ retirement benefits and the funds set aside to provide those benefits is at least $1.38 trillion. The private sector is not much better: a recent article in The New York Times stated that the companies in the Standard & Poor’s 500 collectively reported that at the end of their most recent fiscal years, the difference between their pension plans’ obligations and assets was $355 billion, the largest ever. It may be a good time for those covered by a DB plan to start saving.
There is good news. LIMRA research found that advisors can influence consumers’ behavior.
People working with advisors (defined as a paid professional, e.g., broker, financial planner, or advisor who helps make at least some of their retirement planning and investment decisions) are more likely to be saving for retirement, saving at higher levels, and are confident that they will have sufficient savings to last throughout retirement. Fully 78% of non-retired people who work with advisors are saving for retirement in either a defined contribution plan or an IRA, compared to 43% who do not work with an advisor. Similarly, 61% of those working with an advisor are saving more than 7% of their income in their defined contribution plan versus 38% of those without an advisor.
Importantly, these results are not a function of income; the relationship is true for those with both high and low incomes. These better savings habits are likely the reason that 71% of those working with an advisor are confident they will have a secure retirement compared to 43% of those not working with an advisor.
This is not an unexpected finding, but one that does underline the importance of, and need for, good financial advisors. Given the uncertain and changing economic environment, I only expect this need to increase. Our job is not to promote any particular distribution segment, but to provide the knowledge that will engage and motivate our members, others in the industry, legislators and regulators and the general public to take the actions needed to improve retirement security.
Please read Bob Clark’s blog about LIMRA on July 20 at AdvisorOne.