Retirement Planning is No. 1 Most Difficult Financial Task

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Major Quantitative Study of 4,000 U.S. Households Reveals Who’s Doing Okay, Who’s Falling Behind in Saving for and Living in Retirement, and Which Financial Firms They Prefer and Why

Retirement planning is the No.1 most difficult financial task for Americans, according to a new study by Hearts & Wallets®, a multi-year examination of retirement and savings trends. More U.S. investors are taking over financial planning responsibilities because of their fear of getting ripped off by financial advisors, but many lack the insight required to make informed choices.

The survey of more than 4,000 U.S. households identified how investors of all ages are doing saving for and living in retirement and which firms are winning the hearts and wallets of investors. Among the 280,000 data points, the study identified ways that financial firms can win back investor trust and which investors need the most advice.

“Advice is important since only 60 percent of Americans in or approaching retirement have a solid or written income plan,” said Chris Brown, one of the study authors. “Of those, 57 percent developed their own plan, and plans have on average only 4.1 of the 8 components that we view as important for a robust retirement income plan. Retirees are struggling to make informed income drawdown choices. 30% of those without pensions are drawing down income at unsustainable rates of 7 percent or more.”

The Hearts & Wallets Quantitative Panel 2010 confirmed an anticipated ramp-up in savings by a major, emerging group of American investors, a demographic often overlooked in the focus on the Baby Boomer bump. Accumulators (investors ages 28 to 64 who are at least five years away from retirement) had assets of more than $12.9 trillion at the end of Q2 2010. Accumulator investable assets are projected to reach nearly $14.3 trillion by 2012 with most growth coming in younger market segments of savers in their 40s and younger.

“Hearts & Wallets first identified the importance of this growing market in the fourth quarter of 2008,” said Laura Varas, survey author. “Our understanding of Accumulator attitudes and actions led us to predict a saving increase and growth in the importance of Accumulator lifestages to overall household investable assets. There are more young and emerging households than any other lifestage. The best way for financial firms to connect with this demographic is through retirement plans and a low-cost, technology-enabled model.”

Overall, investable assets of U.S. households stood at $27.1 trillion as of Q2 2010, down $1.3 trillion from Dec. 2009. Of 116 million households, Emerging/Early Career investors (beginning savers in their late 20s through 30s) are the largest lifestage with about 44 million households.

In overall market share, Fidelity Investments and Bank of America lead, having relationships with 16% and 15% of Americans respectively. Bank of America Merrill Lynch has the highest share of wallet. USAA leads all firms by a wide margin in the Hearts & Wallet Score, a measure of intent to recommend and intent to invest more. Discount brokers lead with High Net-Worth investors, Pre-/Post-Retirees and young investors. Full-service firms lead only with retirees and those having more than $500,000 in assets. Full-service firms may want to build relationships now with younger investors, taking a page from Bank of America Merrill Lynch with its online discount option Merrill Edge to build brand equity and bridge investors to full-service channels.

Selected Survey Findings: U.S. Investor Myths and Realties

Not Ready for the Rocking Chair
Myth – Most investors in their late 50s are making preparations to retire.
Reality – Four out of five of those in their late 50s who are still working (or 40% of individuals in this age group) do not have retirement on the horizon within the next five years.

Gimme Shelter?
Myth – As consumers contemplate retirement, of course, they downscale housing and free up assets to support them in their golden years.
Reality – Unfortunately, many Pre-Retirees and Post-Retirees are unsure what do with their real estate equity, leaving them with "frozen assets.” Only 1 in 5 Pre-/Post-Retirees would consider a reverse mortgage. The principal home and additional real estate are 47% of the financial assets for the average Retiree and 26% for Retirees with $2 million in financial assets.

Show Me the Money!
Myth – Only 42% of Americans rate their providers a 9 or 10 on a 10-point trust scale. To turn around low investor trust, the key trust drivers are the financial services provider being knowledgeable and tactical.

Reality – In focus groups, investors say they evaluate whether providers are “knowledgeable” and “tactical” to determine trustworthiness. In the safe anonymity of a survey, both attributes are key, but through regression analysis Hearts & Wallets discovered the key trust driver is “Has made me money.”

About the Hearts & Wallets®
Hearts & Wallets is a partnership between the two leading research experts in retirement market trends for the financial services industry, Chris L. Brown of Sway Research and Laura Varas of Mast Hill Consulting. Their work led to improvements in investment products, support tools and communications for investor groups as diverse as Baby Boomers, retirees and small business owners. The goal of the Hearts & Wallets series is to illuminate underserved, yet potentially very profitable customer segments.

Brown and Varas first gained attention for their groundbreaking insight into retirement money management trends while collaborating for Financial Research Corporation (FRC). From 2003 to 2008, when FRC changed ownership, Brown and Varas’ studies and conferences were must-have resources for strategists, product managers and marketing and sales executives in the retirement industry. The two launched this joint partnership to continue their work together and bring much-needed focus to critically important retirement savings issues facing consumers and the investment services industry. Please visit http://www.heartsandwallets.com for more information.

About Chris L. Brown and Sway Research LLC
Chris L. Brown is the founder and principal of Sway Research LLC, headquartered in Newton, N.H. Brown is regarded as a leading authority on retirement market trends such as the shift from defined benefit to defined contribution and behavioral market segmentation. Sway Research is the leading provider of research and intelligence on the defined contribution investment‐only market, serving leading manufacturers and distributors of investment products. The findings of the most recent in‐depth DCIO study—The State of DCIO Distribution: 2010—has enhanced the decisions of senior executives at dozens of asset management companies both large and small. Prior to starting his own consultancy, Brown founded and directed the retirement practice at Financial Research Corporation (FRC). He also brings practical insight to clients having experience as a financial consultant with Smith Barney. Please visit http://www.swayresearch.com for more information.

About Laura Varas and Mast Hill Consulting, Inc.
Laura Varas is president of Mast Hill Consulting, Inc., (MHC) a Hingham, MA, firm specializing in research and consulting for the financial services industry, with an emphasis on retirement and investments. Varas is a thought leader in identifying trends in the retirement industry. Her company focuses on how Americans – and the firms and professionals who serve them – build wealth and retirement security. MHC is known for its expertise in the retirement income marketplace and undertakes proprietary research, white papers and custom assignments for financial services industry clients. Varas has an extensive background in market research and financial services with line operating experience in the design and distribution of investment and banking products and services at Citibank and Fidelity Investments, and product management, market research and consulting insight at Mercer Management Consulting, Grey Advertising and Colgate Palmolive. Varas is a frequent speaker at corporate sales events and industry conferences on consumer needs, competitive landscape and best practices in the retirement income market and related topics. Please visit http://www.masthillconsulting.com for more information.

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