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Retirees Need Advice Too

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Past retiree stereotypes presented a simple picture. A persons retirement income would come from a workplace pension, a safe and government-backed Social Security system and interest from their life savings. Those savings usually would be invested in guaranteed, fixed-interest rate products, to preserve the principal.

You would take the income from these three sources and that would provide your retirement income. The trick was you had to live on its total and make it last your lifetime.

What a difference a generation makes. Pensions are no longer guaranteed and many have been replaced by individual 401(k) plans. Social Security is under duress, and some question whether the youngest of the 76 million Baby Boomers will benefit from that program.

Todays retiree, particularly the high net worth, has a different standard. Most financial advisors agree these men and women need to retire with between 70% and 80% of present-day income, which should come from a variety of sources. Their advisors probably have provided financial projections on what interest rate they need to earn to make those accumulated assets grow so they last 30 years–the expected length of many retirements.

As a company that specializes in the high-net-worth market, Phoenix annually surveys individuals with a net worth of $1 million, exclusive of their primary residence, to see what is on their minds. The survey is in its fourth year now, and while the high net worth were very confident in 2000, they have been punished by three years of a bear market and their attitudes reflected these tougher times. The 2003 Phoenix/Harris Interactive Wealth Survey, released June 30, found the nations wealthy are gaining confidence and are ready to re-engage in the financial markets so they can begin to grow their assets once again.

Of the 1,496 high-net-worth individuals we surveyed, 544, or 36%, are already retired. What the retirees told us shatters the previously mentioned old stereotypes once and for all.

First, these wealthy retirees are a confident group, which comes as no surprise. Sixty-eight percent said they are “somewhat” or “very optimistic” about their financial future, while 67% of the retirees believe the worst economic times “are over and we will come out of it slowly,” or “the worst is already behind.”

The retirees are comfortable with their present financial status, even after the bear market. Ninety-six percent labeled themselves either “extremely well off,” or “very comfortable/comfortable.”

They seem sure they will be able to maintain their wealth for the long term, with 94% saying they are “extremely/very or moderately” secure.

They also recognize they have achieved their wealth through cautious money management. In response to a question on how they achieved their economic status, 77% responded “by saving and investing well, and building it over the years.” That number is higher than the 64% of the full survey group.

This mindset and the expectations that they will be able to maintain their present quality of life translate into opportunity for financial advisors. We know that because our wealth management survey tells us what financial products they are thinking about purchasing over the next three years–expect them to be cautious. Sixty-seven percent say “it is important to preserve the safety of my capital, even if it means accepting a lower return.” In addition, 90% already report holding stocks, 82% have invested in IRAs, 78% have mutual funds, 70% have bonds and 62% own life insurance, so they are knowledgeable about financial services and their products.

So what are they looking for? In answer to a question “are you interested in obtaining any of the following within the next three years,” they made it clear they will not be standing pat. Fifty-one percent said they are interested in buying more stocks, 35% will consider additional mutual funds and 35% will consider purchasing bonds. It appears IRAs are of lesser interest, presumably because they already own those vehicles.

Interestingly, the survey also shows minimal interest by respondents in annuities, perhaps because they view that product as a wealth accumulation vehicle. This seems to present advisors with an opportunity to educate the wealthy retirees on the payout features of annuities, where they can lock in a retirement income stream for life. In fact, 75% of those surveyed said creating a steady income stream for day-to-day expenses that will last long enough is their most important goal during retirement, so they need to know how the product works.

These respondents also express little interest in life insurance, but again that means opportunity. There is additional room for the strategic use of life insurance in estate planning. The survey found 28% of these retirees do not have an estate plan, and 17% say they expect to put such a plan in place. In addition, while more than 70% of retirees have an estate plan, 36% say those plans were implemented more than five years ago. Perhaps those plans need to be updated. It seems they are ripe for education on this issue.

They are watching the estate tax repeal debate because 78% of the retirees said they are “slightly/fairly or very knowledgeable” about that debate before Congress. But, they are pessimistic that the drive to eliminate the tax will succeed as 42% say they do not believe that levy will be eliminated after 2010, and 37% are unsure whether the repeal will become permanent.

And, while their primary financial goal, even in retirement, is to assure a comfortable standard of living during retirement (69%), they also report they are interested in leaving their estate to heirs (43%) and protecting their estate from taxes (36%).

What do all these numbers mean? It is clear the high-net-worth retirees are looking to be active in the equity markets. They are looking to continue talking with advisors to help them recover from the losses and difficulties of the past three years. They are at a stage in their life when they feel they have time and knowledge to take advantage of all the counsel professional advisors can provide. In fact, 67% say they will seek the opinions of financial planning professionals as they plan during retirement, even though they will make the final decision on where to invest. Only 5% say they rely entirely on professionals.

While some advisors may be wary about approaching retirees based on market performances over the past three years, this market segment wants continued counsel. They are pleased to have achieved a certain level of financial security, and they like the fact that money has given them independence (81%), allows them to provide for their loved ones (80%), and enables them to have a certain level of freedom (61%).

That is not the mindset of a group that is looking to sit back and do nothing. They think financial planning through retirement should not go away. Ninety-three percent said they feel flexibility in the management of their wealth is key to managing and growing it. Help and advice from their advisors is appreciated and financial professionals should be keeping in touch with this group–even after they have left the workplace.

Walter H. Zultwoski is senior vice president, marketing and market research for The Phoenix Companies Inc., Hartford, Conn. He can be reached at walter.zultwoski

Reproduced from National Underwriter Life & Health/Financial Services Edition, August 4, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.