Americans who work with financial advisers are more conficent about their retirement prospects.
The headlines that came out of the 22nd Retirement Confidence Survey released yesterday were dismal: only 14% of American workers are very confident they will have enough money to live comfortably in retirement, essentially the same record-low level that has persisted since the start of the Great Recession.
But if you scratch beneath the surface of the annual survey conducted by the Employee Benefits Research Institute, there is some positive news: Retirement confidence levels are measurably higher among workers who have taken positive financial actions including saving in an employer-based retirement plan, getting advice from a financial professional or calculating retirement savings needs.
“Especially in an uncertain economy, having a plan and taking action helps Americans focus on what they can control and builds a realistic sense of optimism about the future,” said Greg Burrows, senior vice president of the Principal Financial Group, a long-time underwriter of the Retirement Confidence Survey. “Working with a financial professional to set goals, and putting aside as much as possible, helps with short-term needs and paves the way for more security in the long term.”
While only 52% of all workers say they are somewhat or very confident about their retirement prospects, 64% of those who obtained advice from a financial professional expressed confidence that they would have enough money to live comfortably in retirement.
In a separate study conducted for the Certified Financial Planner Board of Standards released today, Americans recognize that they have more responsibility than ever for their own financial security, including retirement. But they still expect the government to provide the crucial social safety net of Social Security and Medicare benefits.
More than 80% of respondents say they recognize the urgency of creating a financial plan and nearly 60% said they would benefit from the counsel of a financial adviser, said Kevin Keller, CFP Board Executive Officer.
Bottom line: Many Americans are experiencing a healthy reality check. Before the economic meltdown, the stock market was not the only forum for irrational exuberance. Many workers assumed their ever-escalating home prices and their rising 401(k) balances would provide a smooth transition to retirement—including many who had never taken the time to calculate how much money they would need once they got there.
“Confidence is a state of mind,” says Nevin Adams, co-director of EBRI's Center for Research on Retirement Income. “People who take the time to figure out how much money they need to save for retirement tend to set higher goals for themselves.” Now that many of them are scared straight, they are looking for help getting their financial houses in order.
Advisers couldn't ask for a better environment to play a vital role in the transition, although they may have to look for a new venue. The majority of Americans are accustomed to getting their financial information at work where the bulk of their retirement savings reside. Financial advisers have traditionally focused on serving the needs of plan sponsors. Maybe the focus should shift to helping plan participants.
In the future, more transparency over 401(k) fees could open the door for fee-based financial advice in the workplace. And rather than using the percentage of participants enrolled in the plan as the benchmark of success, the focus should shift to the percentage of participants who are on track to replace 80% of their pre-retirement income, including Social Security benefit, once they stop
