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Better performance key factor in retirees’ DC plan rollovers

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The majority of recent retirees with substantial assets in a defined contribution plan at retirement chose to move their assets out of the plan, according to a new study.

The Center for Retirement Income at the American College of Financial Services discloses this finding in a report that examines the actual behavior of individuals when facing the rollover decision. The survey also explores how —and how well — individuals make decisions about what to do with their money,

The study reveals that, of the 62 percent of recent retirees that rolled assets out of their defined contribution plan at retirement, more than eight in ten did so with the help of a financial advisor.  This compares to the 38 percent who left money in the plan. Only about half (56 percent) reported they have an advisor.

The survey, reports that the main reason why retirees rolled over their assets was the probability of improving performance (70 percent), followed by consolidating assets (68 percent).  For those who kept money in the plan, over two-thirds (65 percent) cited liking the investment options.  Interestingly, almost half of this group took a more passive approach, reporting that it was easier to leave things the way they are.

“The good news here is that the retirement income message is breaking through,” says David Littell, co-director of The American College’s Center for Retirement Income.  “The vast majority of consumers we surveyed recognized the importance of the rollover decision and were careful with their decision making. 

“However, there was evidence that those that left their money in the plan were less likely to be concerned about the rollover decision, work with an advisor or create a comprehensive plan,” he adds. “So clearly there’s much more work to be done. And it starts with the financial planning experts on the front lines of educating and guiding retirees.” 

The survey finds that those who rolled money over with the help of an advisor were more likely to have a comprehensive retirement plan (89 percent, compared with 71 percent who rolled over without the help of an advisor).  Furthermore, their financial plans were comprehensive, reflecting retirement income planning strategies. 

Recent retirees with a financial plan report their plan contains:

  • an estimate of the amount of income they will receive each year in retirement (95 percent);

  • a plan for where their income will come from each year in retirement (93 percent); and

  • an estimate of how long their income will need to last in retirement (93 percent). 

Those who work with advisors are somewhat more likely than those who do not to say that their plan includes targets for how their assets will change over each year (73 percent vs. 61 percent). Respondents report that advisors are less likely to include how to pay for long term care (59 percent) and legacy planning (55 percent) in their comprehensive plan.    

Additionally, 80 percent of survey respondents agree that advisors are helpful because they can review the retiree’s financial planning and point out things they have missed.

The one area of concern reported by retirees relates to the investment of assets. Just one-third (34 percent) of respondents feel extremely or very knowledgeable about investing and investments. And only 43 percent of respondents are extremely or very confident about making decisions about savings and investments on their own without an advisor. 

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