Even though only a quarter of Americans think their retirement will be better than previous generations’, most are looking forward to it, according to survey results released Monday by Franklin Templeton.
Franklin Templeton surveyed more than 2,000 American adults for the 2014 Retirement Income Strategies and Expectations (RISE) Survey and found 72% said they were looking forward to retirement. However, not only are just 25% of respondents confident that their retirement will be better than their parents,’ 41% actually think it’ll be worse.
“That’s the ultimate contradiction,” Michael Doshier, vice president of retirement marketing for Franklin Templeton, said of a survey where they found many contradictions. He noted that considering the number of different voices Americans hear talking about retirement, it’s not that surprising to find some inconsistency.
“If you take a big step back, there are a lot of forces at play working on people’s heads on this topic,” he told ThinkAdvisor on Tuesday. “We see the obvious stuff about DB plans giving way to DC plans, what’s the future of Social Security — there’s a lot of background noise that probably builds up a lot of anxiety for folks thinking about retirement. In general, seeing this erosion of confidence is not surprising.”
He added that Americans have a tendency to be optimistic, even when there are forces working against them. “The general optimism of the U.S. population seems almost relentless sometimes. There are other things; we see improvements in people saving in 401(k) plans and you see good market performance — maybe the jobs and economy aren’t what we hoped they would be, but the stock market’s been on a good four-, five-year run. There are a lot of forces, some working for and some working against [respondents’ optimism]. The net is people are still as optimistic as they always are in this country, but there are some cracks in it.”
The majority of respondents, 92%, said they expect retirement expenses to be similar or less than their preretirement expenses. Still, running out of assets is a concern. Almost half said they were worried about outliving their assets, and 39% haven’t even started saving.
That number is “highly influenced” by young people who are just starting out, Doshier said, but it doesn’t explain all of it. Almost three-quarters of people between 18 and 24 said they hadn’t started saving yet, but 42% of the 24- to 34-year-old group and 37% of people between 35 and 44 agreed. One in five people between 65 and 74 and 36% of people over 75 said they haven’t started saving.
“It is highly influenced by younger people for sure, but still — 39% of our whole population of interviewees, from 18 into retirement — clearly still there’s an issue with some older folks,” he said, adding that increasing savings for people who are starting late is a problem that is beginning to be talked about more. Automatic enrollment and age-based defaults help increase savings, but “if you’re late to get started and you don’t start saving till, say, you’re in your 30s, there’s nothing that really addresses that problem.”
Doshier added that recent proposals from Washington could “further curtail some use of retirement vehicles from a financial standpoint.” He said that a good advisor who starts talking about retirement income early on in the relationship can get ahead of the “surge of concern,” which appears “well before that red zone of the last five to 10 years. It’s more like 15 to 20 years out.” Advisors who really want to put those fears to rest need to encourage their clients to keep making their 401(k) contributions no matter what the markets are doing and show them how their various sources of income — 401(k)s, IRAs, Social Security — will come together to make a paycheck in retirement. “If they do nothing more than have those kinds of tactical conversations, most people that have that level of advisor relationship, they know more about what to expect from Social Security, they feel better about themselves,” Doshier said.
In fact, Doshier said, “The next big battlefront for advisors is being enough of a Social Security consultant that they can say, ‘Here’s what you’re tracking toward, and here’s the gap you’ve got left.’”
The survey asked respondents if they think they’re doing enough on Social Security, Doshier said, and found most are comfortable with the basics, but few can really call themselves experts, especially for a topic that can be fairly complex for all but the simplest, “married for 40 years, held one type of job” kind of client. “There’s a subset out there that feels like they’re going heavy at this and becoming experts,” he said. “The vast majority feel like they do some basics. There’s still a minority out that that refers people to the SocialSecurity.gov website or some other kind of administrative solution.”
Doshier noted that Social Security will impact clients differently depending on their income level. “If you break out all the different socio-economic statuses, the lower income level should be fairly well served by that income mechanism. The upper income level, if they do a good job saving, should be well-served of their own accord,” he said. “There are a middle couple of levels where they make enough that Social Security provides less, but maybe they didn’t make enough that they feel like they could save to fill that gap.”
Check out How to Get Tax-Free Retirement Income With Life Insurance on ThinkAdvisor.