Ahead of the Game

Many affluent Americans are addressing economic uncertainty by modifying expenses in the short term, and maintaining retirement investing for the long term, according to new research from Bank of America. The telephone survey conducted by Braun Research in mid-March, which polled 1,000 Americans–750 nationally representative Americans, and 250 individuals with investable assets between $100,000 and $3 million–explored retirement planning and funding, spending and saving in the current economy, and retirement savings literacy. Results found that 57% of the mass affluent are changing their spending habits based on current market conditions, including spending less on vacations (48%) and shopping (45%). What’s interesting is that 73% of the respondents have not reallocated their retirement investments. “Our survey confirms that consumer spending is tightening, contributing to the country’s economic downturn,” said Lynn Reaser, economist and retirement strategist, Bank of America, in a statement. “The best way to protect retirement savings in volatile times is to remain diversified and maintain a long-term perspective,” she added. For the 27% of affluent Americans that have changed the allocation of their retirement investments, 33% reduced investments in stocks, 37% have moved investments to fixed income, and 31% reallocated retirement funds for other purposes.

Vague Retirement Vehicles

At a time when the need for retirement planning has never been greater for individuals and families, a major roadblock exists for many Americans around starting and eventually navigating through the process, according to the survey. The research found that affluent Americans are more familiar with retirement products than the general population, with 84% reporting they are familiar with traditional IRAs and 62% reporting they are familiar with Roth IRAs. Still, only 56% currently incorporate an IRA into their retirement planning. Additionally, while affluent Americans are more likely to have an IRA than the general population, they are no more likely to fund it annually. The survey revealed that only 43% of both affluent Americans and the general public with IRAs fund them on a yearly basis. And while affluent Americans experience fewer obstacles during their retirement planning journey, they do share similar frustrations with the general public. Roughly 33% of affluent Americans reported difficulty in identifying appropriate retirement investments, 24% struggle with knowing how much they will need to retire comfortably, and 24% also have a problem determining how to set aside the savings. This compares to 42%, 40%, and 29% respectively for the general consumer market surveyed.

“Americans clearly need guidance and education regarding how much of their pre-tax annual income they will need to maintain a similar lifestyle in retirement,” said Dan McNamara, retirement products group executive, Bank of America, in a statement. “A 401(k), 403(b), pension plan, IRA or Social Security is typically not enough to enable individuals to reach their retirement goals.”