Individuals who pay for financial advice generally are feeling positive about their ability to prepare for their post-working days. Nearly all (87%) feel "knowledgeable and educated when it comes to planning for retirement," and most (80%) believe they are saving enough to fund their retirement. In fact, when clients are asked to rate their confidence that they'll maintain a comfortable retirement on a scale of 1-10, 88% give a rating of seven or higher, and only 1% of respondents give a rating that's less than five (Fig 1.).
While clients are confident that they'll have a happy retirement, their expectations may not be aligned with the concerns of their advisers. The average investor plans on being retired for 25 years, three years less than advisers' average planned client retirement length of 28 years.
(More: Advisers need to reinvent how they deal with aging clients, says longevity expert)
Furthermore, only 40% of individuals envision a longer retirement — one lasting more than 25 years. In contrast, nearly two-thirds (63%) of advisers' average client plans project a retirement of more than a quarter century (Fig. 2).
To maintain their desired standard of living in retirement, investors believe they'll need to replace an average of 65% of their pre-retirement earnings. On the other hand, advisers recommend an average replacement rate of 74% — nearly ten percentage points higher.
While most advisers (87%) expect their clients will need more than 60% of their income to maintain their standard of living, only 61% of investors feel they'll need that high of a replacement rate (Fig 3.). These data suggest a disconnect between clients and advisers when it comes to longevity risk and how to best to prepare financially for it.
|
Advisers |
Investors who use an adviser |
| Up to 20% |
2% |
5% |
| 20%-40% |
3% |
12% |
| 40%-60% |
9% |
23% |
| 60%-80% |
64% |
43% |
| 80%-100% |
23% |
18% |
This disconnect is further demonstrated when the two groups list the financial challenges they perceive. When asked about the biggest issues they may encounter in retirement, individual investors are most likely to mention medical expenses (46%) and health-care premiums (30%).
Advisers also rank medical expenses (50%) at the top of their list of issues, but they tend to be more generally concerned about their client's longevity (50%). Compared to individuals, advisers are twice as likely to mention the costs associated with longer lifespans (Fig. 4).
(More: Why healthy clients need to save more for retirement)
While concerns about paying for health care are well-founded, investors may be underestimating an underlying driver of the issue — increasing rates of life expectancy.
It seems that advisers may better understand the risk of longevity but may not be properly communicating the issue to their clients. Better client coaching would give investors a clearer sense of the retirement length and savings they ought to expect in order to fund the comfortable retirements they envision.
(More: 62% of firms plan to adopt new client-facing technology this year)
The survey data mentioned in this blog post are part of an upcoming project, conducted by InvestmentNews
Research and sponsored by The Alliance for Lifetime Income, that's expected to launch later this year. We set out to better understand how advisers and investors are thinking about and approaching retirement income planning. If you have any thoughts, comments or ideas for further survey data exploration, please feel free to reach out to jgallardo@investmentnews.com.
