Although half of Americans consider retirement a top priority, 58% do not have a formal retirement income and savings plan, according to a report released by Deloitte.
Harris Interactive surveyed nearly 4,500 Americans over 26 on behalf of Deloitte Center for Financial Services and found that although just 30% say they feel “very secure” in their retirement prospects, those with a plan were four times more likely to feel secure. What’s troubling, though, is that many people are convinced that no matter how much they save, it won’t be enough.
“People used to think about retirement as a straight-line plan to a lump sum,” Ed Tracy, one of the authors of the report, told AdvisorOne on Friday. “That’s changed, particularly since the financial crisis; the way people think about retirement is fundamentally changing.”
Investors are facing more short-term challenges, Tracy said. “Life is more turbulent in terms of employment, education—the cost of college isn’t going down—health care, basic short-term expenses. It got to the point where a lot of people are pessimistic.”
To combat that pessimism, “wealth managers have to recognize that viewpoint has changed a bit and pursue short-term, medium-term and long-term strategies.
The influence of an advisor is undeniable. Two-thirds of respondents who work with a professional advisor had a retirement plan compared with 28% of respondents who don’t have an advisor.
Deloitte identified five potential barriers that may be keeping respondents from adequately preparing for retirement.
First, they may be struggling to find a place for it among their other financial priorities. Respondents said the No. 1 reason they didn’t have a financial plan was because they had other, more important priorities.
Furthermore, the retirement industry may be failing these consumers. Sixty percent said that in the past two years, they’ve had no interaction with any financial institutions about their retirement needs. Even when financial institutions do communicate with consumers, according to the report, they often don’t help them integrate their retirement planning needs into their larger financial plan.
A third barrier is consumers’ lack of understanding about financial products. Nearly 40% don’t know about or understand annuities. Many are simply unaware of the number of options available to them.
Another barrier is a holdover from the recession. Respondents had a remarkably low level of trust for financial institutions in general. Just 20% said they had a high degree of trust for financial institutions of any type.
“After the crisis, investors started looking closer at their portfolios and that hasn’t ebbed,” Tracy said. “Folks are leery about proprietary products and assets allocations that don’t tie to their individual goals.” Tracy said that “intertwined with that mistrust” is investors’ disappointment with a lack of tailored advice.
Trust, or a lack of it, was one of the top reasons those DIY investors gave for wanting to take on their financial planning by themselves, Tracy said. While it may seem like investors who are trying to plan on their own are at least a little better off than those who aren’t planning at all, the report found just 17% of respondents are managing their portfolio on their own and also have a retirement plan in place.
Tracy noted, though, that just because there’s a large segment that doesn’t have a plan, that doesn’t mean there isn’t a lot of activity in terms of investments. “Wealth managers need to rethink what they need to be providing,” he said.