While retirement savings is a leading concern for a majority of Americans, more immediate financial priorities is one barrier preventing life insurers and annuity companies from reaching prospects with retirement-related advice, products and services, according to a recent survey by Deloitte’s Center for Financial Services.
Deloitte’s survey of nearly 4,500 consumers from a wide range of age and income groups revealed five barriers creating a disconnect between financial institutions and consumers when it comes to retirement planning. We laid out these barriers in our previous article, including ineffective communications, lack of product awareness, mistrust, and a “do-it-myself” mentality, in addition to conflicting priorities.
Indeed, while saving for retirement was by far the most highly ranked financial goal — even among respondents who are years away from retiring — the most common reason for not being able to save for retirement is that other financial concerns get in the way, including paying off a mortgage, student loans and other debt, or saving for a child’s education.
As one respondent said, “Right now, I have more pressing ways to allocate my money.” This was particularly the case among the younger respondents.
The second most important financial priority, especially among older respondents, is saving money to pay health-care costs. This is not surprising, considering that 70 percent of those surveyed said they expect their medical expenses to increase during retirement. A smaller but not insignificant number of respondents listed a related concern — long-term care expenses — as a top-two priority as well.
Concern over medical costs not only undermines retirement security but also appears to discourage the retirement planning process itself. One-third of respondents within five years of retirement surveyed by Deloitte said that no matter how well they prepare, they are concerned that health-care and/or long-term care expenses could overwhelm their retirement savings and income goals. That percentage of doubters increases to 40 percent for those more than five years from retirement.
As a result of multiple, often conflicting financial concerns, the majority of individuals tend to deal with their financial priorities in a disjointed fashion. Indeed, only one in five of those surveyed by Deloitte say they address retirement savings and income needs as interconnected with other priorities.
This myopic focus on the most immediate financial priorities prevents many from seeing the bigger picture, and discourages them from considering and accounting for longer-term needs such as retirement.
In addition, a large segment of respondents is pessimistic about their ability to address long-term retirement needs even if they tried. This cynicism is clearly evident in the fact that many respondents believe a) they don’t expect to earn enough of a return on their investments to provide sufficient retirement income, and b) no matter how much they save, health-care costs will ultimately overwhelm their nest egg.
This lack of confidence in their ability to make a difference with retirement planning could be one prime reason why so many people don’t bother trying to put together a retirement savings and income plan in the first place, and therefore see no reason to seek out professional help to do so. After all, in the view of such individuals, what would be the point?
To begin to overcome the “conflicting priority” barrier, financial services providers should consider offering more holistic approaches and solutions. It likely does little good to pitch retirement products alone to someone who is more concerned for the moment with mortgage or other debt issues.
Conflicting priorities could be addressed as part of a comprehensive financial plan that at least gets the prospect started on retirement preparation, even if the initial efforts are relatively modest. By addressing the bigger picture while taking other priorities into account, consumers will likely gain more confidence that they can in fact start accounting for retirement needs earlier on, making adjustments as they advance in the lifecycle.
Part of the challenge in overcoming this barrier may be the product-centric organizational structure that is quite common in many financial services companies. For instance, institutional businesses (such as employee benefit services) might be separate from consumer-focused retail operations, or insurance separate from investments. Or distribution might not be well integrated with the product development function.
Also, current incentive structures may not encourage collaboration across business lines to offer the holistic solutions that many consumers need. In order to provide such services and be successful at it, certain structural changes in operating models might be required.
A financial institution may not be able to directly address all of a consumer’s financial needs under one umbrella. But broadening the discussion beyond retirement savings and income considerations, and helping consumers to think through their often conflicting concerns could transform a financial institution from a product provider into a financial facilitator and enabler, which may help them capture a greater share of the retirement piggy bank in the long run.
Establishing marketing partnerships with other providers, such as health- or long-term care insurers, is one way to possibly expand the dialogue and deal more holistically with clients on retirement.
In the next installment of this series, we’ll examine how financial institutions might overcome the second barrier discouraging or preventing many people from planning for retirement —t he failure by the industry to effectively communicate with consumers on retirement issues, particularly via the workplace.
In the meantime, a full report on the survey results and their implications—“Meeting the Retirement Challenge: New Approaches and Solutions for the Financial Services Industry”—can be accessed with this link.
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