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Affluent Put Off Retirement, Cut Expenses: Merrill Lynch Survey

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The affluent are feeling the economy’s pinch, even if not quite as hard as others, according to the Merrill Lynch Affluent Insights Quarterly. The survey, conducted between Sept. 13 and Oct. 7 by Braun Research and released Thursday, revealed that not only are the affluent cutting back on their spending for such nonessentials as luxury items and entertainment (27%), they are also creating emergency funds (19%), paying down debt and drawing upon long-term savings to meet daily expenses.

In a conference call discussing the results of the survey, Sallie Krawchek (left), president of Global Wealth & Investment Management (GWIM) for Bank of America (BAC), pointed out that there were three recurring themes in the responses: health care concerns, worries about retirement—with conservatism and nervousness predominating among women and younger investors—and the fact that these stresses are indeed experienced by the affluent given their financial position.

One of the biggest surprises was the conservatism and low risk tolerance among the younger affluent: Krawchek pointed out that among the young (18- to 34-year-olds, with the mean 31 years old), 70% worried that their assets would not last through retirement, compared to 57% of older respondents

“The typical order of things,” said Krawchek, “is that younger investors are more risk tolerant than older investors, but this is not the natural order of things. Younger investors … are more concerned and conservative than their parents.”

The affluent's  primary financial concerns are: rising health care costs; outliving their assets; being able to afford their desired lifestyle; the impact of the economy on meeting their financial goals; the current state of the real estate market; and caring for an aging parent.

Andy Sieg, head of retirement and philanthropic services for Bank of America Merrill Lynch, said that health care and retirement concerns “really pop as top concerns for affluent households.” The data on these concerns, he adds, has been stable over the years. “Even among American’s most affluent households,” he emphasized, “there is a sharp level of concern about healthcare costs. The impact on the financial industry is that advice on health care is important. Planning for health and wealth are two sides of same coin. How do we help them engage in longevity planning?”

Krawcheck added that respondents indicated that they are more optimistic for improvement in their personal financial situations than they are for improvement in the economy. Slightly over one quarter (26%) are optimistic that the economy will improve (nearly half aren’t sure), but 78% believe that their own financial well-being will change for the better in the year ahead.

Of note for advisors were two things. The first is that 61% believed they would have to put off their retirement till later in life, compared with 29% in January; 20% indicated they’d pulled money from long-term savings either to offset a loss of income from a family member (19%), pay down excess debt (27%), or to cover their regular monthly expenses (35%).

(The percentage of affluent who’d drawn on savings rose to a third, pointed out Lyle LaMotte, head of U.S. wealth management for Merrill Lynch Wealth Management, when considering small-business-owning respondents.)

The second, and perhaps most important for advisors, is that the affluent are talking more often with their advisors, 51% as often as once a month (up from 39% a year ago).

Although 39% of affluent Americans describe themselves as having a low risk tolerance, 44% of women describe themselves that way; when it comes to aggressive investing, 17% of men characterize themselves as aggressive investors while only 6% of women do.