If you’re a financial advisor with retired clients, you’re likely aware that retirees today are living longer, healthier lives than those in past generations. But did you know that retirees are spending a lot of time in front of the television or that most retirees are not relocating to lower-tax, warmer-weather states?
Those are just two of the surprising findings of a new study from robo-advisor United Income, called “The State of Retirees: How Longer Lives Have Changed Retirement.”
The report, based on data from multiple government and private data sources rather than a single online or phone survey, found that retirees on average spend about 4.5 hours, or 30% of their waking hours, watching TV including news shows on network and cable channels.
That can not only increase health problems but also make clients increasingly risk averse, says Matt Fellowes, CEO of United Income and co-author of the report. “Clients are getting too cautious,” which, in turn, makes it harder for advisors being able to “deliver meaningful wealth returns,” explained Fellowes, a former innovation officer at Morningstar.
He recommends that advisors work to counteract those fears, “getting active in the lives of their clients,” suggesting ways for clients to get more involved in their communities, in creating personal networks and in their hobbies. “A lot of older advisors are as much a life coach as a wealth manager. They should be aware of the increasing amount of time clients are spending each day in front of the TV, which is blasting increasingly sensational news,” Fellowes said.
Retirees also are more physically active, but the time they spend watching TV is three times as much as the time they spend on physical activities. For every 10 minutes added onto the life of a retiring 60-year-old, one minute is spent watching TV and just 20 seconds is spent on exercise, outdoor activities or sports, according to the study.
Staying Put As the health and wealth of retirees have increased, more are choosing to stay in or near their homes and neighborhoods rather than moving to a lower-tax state or cheaper, more rural areas within their states. “Retirees are increasingly staying put and living in more expensive suburbs near urban areas instead of less expensive rural areas,” the report finds.
Nearly half of retirees are now living in the suburbs of cities, and their numbers have increased by almost 40% over the past 40 years. The share of retirees who say they have moved in the past five years has fallen from a high of 23% in 1980 to a low of 15% in 2015, the most recent data available, and only 1% report moving out of state, according to the study.
“Retirees are more likely to move across town than to another state,” Fellowes said. They are not moving en masse to states with lower tax burdens or crime rates or better weather. How else to explain that three of the five states with the largest populations of retirees — California, New York and Pennsylvania — are among the states with the highest taxes, yet the share of Californians who are seniors has climbed to 11% currently from 7% in 1965? Low-tax Texas and Florida round out the five states with the largest senior populations.
“As retirees have become progressively healthier and wealthier they are increasingly choosing to live in more expensive, culturally vibrant, urban areas of the country and eschewing in growing numbers the lower cost, more remote rural areas,” according to the report.
Happy and Healthy The biggest changes for retirees have been their increased wealth, which has more than doubled between 1989 and 2016 to an average $752,000 in total wealth, and life expectancy, now 83 years for the average 60-year-old.
“The majority of retirees are much wealthier than previous generations,” said Fellowes. “But the next generation will face new challenges. Even bigger than the potential threat of government benefits being rolled back is that fact that we have not adjusted life cycle expectations. Most retire at age 62 — an age that’s fallen since the 1970s — even though they will live much longer.” Moreover, this mismatch between work, retirement age and life expectancy has been accelerating, says Fellowes. Plus, despite these gains in wealth, about half of all U.S. retirees remain highly dependent on their Social Security income, according to the report.
It concludes with a recommendation that today’s healthier and wealthier retirees become a resource for others. They could, for example, mentor and volunteer in schools, or pool together their $14 trillion in financial assets to back tax-advantaged bonds to help finance needed infrastructure projects. The report also suggests creating broader tax benefits for donors or their heirs to contribute to targeted domestic priorities such as education or infrastructure. —Bernice Napach
Passive TDF Misconceptions
The use of passive target date funds in defined contribution plans continues to grow, in part due to their low cost relative to other TDF options. “There’s been a significant interest in move of assets to so-called passive target date funds, or index target date funds,” according to Jake Gilliam, senior multi-asset class portfolio strategist at Charles Schwab & Co.
Gilliam spoke with ThinkAdvisor.com to discuss why plan sponsors and advisors should look beyond just the low cost of passive TDFs and dig deeper in their due diligence. Gilliam recently co-authored a white paper for Schwab, “Passive Target Date Funds: Separating Myth from Reality,” which highlights three misconceptions about passive TDFs.
“Plan sponsors — as fiduciaries to their plan — are often very concerned with price,” Gilliam said. “We also want to encourage them to be as concerned with the fit of the target date fund, the underlying glide path, the design of the target date fund.”
Misconception No. 1: Passive TDFs are always a safer fiduciary choice. Prudent TDF selection is about process, not just pricing, according to the report. “As a plan fiduciary, you can’t just look at cost. There’s much more to the story,” Gilliam explained. “Cost is important. Cost is incredibly important, but it’s just one thing.”
Going passive and low cost may seem like “the easy choice,” but it does not absolve fiduciaries of their due diligence and ongoing monitoring responsibilities, according to the report. The report states that “low fees alone are unlikely to be in the best interests of the plan fiduciary if the overall TDF design is a poor fit.”