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October 24, 2023 at 08:43 PM
What You Need to Know
- Evidence from a recent survey shows investors with written retirement plans are more confident than those with informal plans.
- As noted by retirement expert Jamie Hopkins, a written plan that is revisited regularly over time allows a better understanding of the big picture.
- More granular planning is also linked to a greater willingness to utilize guaranteed income annuities.
It is probably obvious to financial advisors that investors who engage in retirement-focused financial planning tend to feel more confident about life after work than those who don’t.
While working with an advisor, saving for retirement ceases to be an abstract effort and is instead expressed in terms people can learn about and understand — from asset allocation and risk tolerance to sequence of returns and longevity risk.
However, advisors may be surprised to see just what a difference actually writing down the retirement plan can make — spelling out exactly what dollar figure is being targeted as an annual income goal and how this wealth will be generated from the client’s potential sources of household wealth.
According to a new survey report published by LIMRA, the act of writing down such a plan substantially boosts the confidence expressed by investors. Specifically, LIMRA’s analysis found that 87% of people with a written plan for retirement felt confident, while only 70% of those with an informal plan expressed the same.
Additionally, formal retirement plans appear to increase the probability of completing key retirement planning activities, such as determining one’s income in retirement, calculating the total assets and investments available, and estimating the years those assets and investments will last.
Despite these advantages, LIMRA’s survey suggests only 1 in 5 Americans has a formal written retirement plan, meaning many more Americans could benefit from the process of sitting down with a financial advisor and crafting a granular approach to retirement.
The Power of Planning
The LIMRA survey results quickly caught the eye of planning expert Jamie Hopkins, director of private wealth management at Bryn Mawr Trust. In a short video posted to the social media platform X, formerly Twitter, Hopkins urges other advisors to consider the significance.
“The reality is [formal] planning impacts confidence,” Hopkins says. “There is some measure between those two, and as you do more planning you start to better understand the big picture — how everything fits in together.”
According to Hopkins, another big finding shows just how concerned people are with different retirement risks — and how these concerns are eased by more specific financial plans. For example, cuts to Social Security and Medicare are cited by 52% of female investors as being a top concern, meaning they rated it with a concern level of 8 or higher on an 11-point scale.
“That’s reasonable,” Hopkins says. “These are [programs] that are living on borrowed time in the current way of funding … Will the government address this at some point? Yes, likely, but they are reasonable things to be concerned about.”
