Client Service August 31, 2016

Couples Not Going Deep into Retirement Planning

Advisers can help by including spouses in retirement planning conversations.
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A survey of more than 1,800 Americans in a relationship, defined as those who are married or living with a partner, found that savings inaction, failure to share financial specifics with their significant other and reliance on overly conservative investments, may be jeopardizing their chances of achieving a happily-ever-after retirement.

One in three Americans in a relationship (33%) report that neither they nor their partners are saving for retirement. Among the 36% of Americans in a relationship who report that their partner is saving for retirement, roughly one in five (23%) say they do not know how much their partner contributes to long-term retirement accounts or have even a general sense of the total value of their partner’s retirement account (21%). In addition, 21% of Americans in a relationship who are personally saving for retirement say their partner doesn’t know how much they are contributing to their long-term retirement savings.

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Dayana Yochim, investing specialist for San Francisco-based NerdWallet who works in Alexandria, Virginia, says, “One of the big reasons couples don’t discuss retirement savings is it’s a distant, fuzzy target. It gets pushed to the back burner behind more immediate needs and goals. While it’s natural to focus on these, it is important to know the state of the financial union.”

Yochim tells PLANSPONSOR there are advantages to being part of a couple, and by not talking about retirement savings, they could be leaving money on the table and shortchanging their future together. “They should be working together to maximize every dollar in the household. Togetherness is very powerful,” she says.

NEXT: Using the right savings vehicle makes a difference

The survey found lack of communication also plagues those who are saving and use accounts with brokerage firms to save for retirement, with 43% of respondents stating that they do not consult with their partner about trading decisions regarding their brokerage account.

Yochim explains, “Often we see one person more engaged in the logistics of saving for retirement. That’s fine if that’s the person’s strong suit and what they bring to the relationship. But they should keep their partner informed. What if that person dies or becomes incapacitated and is unable to do those duties anymore? If their partner is in the dark, he or she won’t know what to do.”

Thirty-nine percent of Americans in a relationship who are saving for retirement use a workplace retirement savings plan, such as a 401(k) or 403(b). However, the second most common account Americans in a relationship use for their long-term investments is a bank savings account (31%), despite the fact that these accounts typically pay minimal interest.

NerdWallet explains that the financial advantages of investing money earmarked for retirement in an account designed for that purpose are clear: In 30 years, a couple that saves $5,000 a year in a Roth IRA earning a 5% average annual return will have approximately $332,000 in savings—$180,000 more than if they let their money languish in a bank savings account earning 0.1% interest.

Yochim says plan sponsors and advisers can help with general education about which accounts are best for saving for retirement.

NEXT: What plan sponsors and advisers can do to get the calculations started

Three out of four (76%) survey respondents in a relationship, where at least one partner is saving for retirement, say they’ve discussed general retirement planning issues such as at what age they want to retire, where they want to live and what they want to do. But the conversation seems to trail off when it comes to calculating the specifics. Thirty percent of survey respondents in a relationship who report at least one partner is saving for retirement say they do not talk to their significant other about how much money they will need to retire.

Again, Yochim says, education is key to help couples start crunching the numbers. General education should help employees prioritize all financial demands and provide basic rules for finances, such as paying off high-interest debt, having an emergency fund and balancing college savings and retirement. Plan sponsors and advisers can also utilize available resources, such as calculators and planning tools, to help couples see how to create a plan for their financial future.

Yochim suggests plan sponsors or advisers host a financial health day and invite employees’ partners to discuss retirement goals and their savings plan.

“When partners are on the same page and excited, it is a lot easier to get them talking together. Being able to include other members of the household in these decisions and give them a checkup about the state of their financial union will help get conversations started and help couples improve their future financial situation,” she concludes.

Findings of the survey can be found here.

Data & Research August 30, 2016

Caretaking Competes With Retirement Savings for Asian Americans

Asian Americans identify a need for more holistic financial planning, but express a distrust for advisers. However, they can be reached.
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Asian Americans/Pacific Islanders have a shared focus on the financial progress, stability and security of the extended family. At the same time, Asian Americans face many of the same financial challenges as the U.S. general population, such as saving for retirement and managing household budgets, according to the Asian American Financial Experience study from Prudential.

Asian Americans surveyed place a higher importance on providing college tuition for their children, and taking care of family members as one of their top financial goals compared to the U.S. general population. Approximately one-third of Asian Americans identify themselves as caregivers for another person (e.g., spouse, parent, relative), compared to 22% of the U.S. general population. In addition, 20% of Asian Americans provide financial assistance to their relatives, versus only 6% of the U.S. general population.

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Sri Reddy, head of Full Service Investments at Prudential Retirement in Hartford, Connecticut, says that while retirement is important, the focus on family is equally important to Asian Americans, so plan sponsors and advisers can provide tools and solutions for total financial wellness, such as college planning, caretaker planning and long-term care. “The study shows clearly that Asian Americans don’t want to be a burden on their own children, so they are also open to saving more on their own,” he adds.

According to the study, Asian Americans feel better off financially than the general population and better prepared for retirement. Asian Americans believe they will be able to retire at age 64.6—more than a year earlier than the U.S. general population.

Reddy says there are three factors in play for Asian Americans feeling better off financially. Most Asian Americans live on the East Coast or West Coast where incomes tend to be higher than the national average, so their savings is also higher. Most are the first generation of immigrants and they typically obtain Visas for jobs requiring higher education. This means they are working for larger employers that are more likely to offer a defined contribution retirement plan. In addition, when an immigrant comes to a new country, they don’t have a safety net if things go astray, so they start saving right away. According to Reddy, most survey respondents have a year’s worth of rainy-day funds.

Like the U.S. general population, Asian Americans rank retirement-related goals, such as having enough money to maintain current lifestyles through retirement (49%) and not becoming a financial burden to loved ones (38%), among their top financial priorities. Reddy says plan sponsors and advisers can help with these goals by providing broad-based education and guidance. “It’s not just about a single point in life; for example, they need to make the right decisions about debt,” he explains. “Debt is not always a bad thing. If someone can get a mortgage at a low interest rate, they can save more for retirement. But if the person is not aware of the choices, they could make an inappropriate choice.”

NEXT: Financial professionals not always trusted

Asian Americans are more inclined to seek out information before making a financial decision and respondents indicated they consult more resources than the U.S. general population (5.8 resources on average versus 4.1). Family members are cited as preferred source of financial information by 44% of Asian Americans, followed by friends (37%), financial professionals (36%) and employer or employer-sponsored resources (35%). Asian Americans surveyed also demonstrate a higher propensity to consumer information from less traditional sources, such as social media (18%), investment clubs (13%) and faith-based organizations (13%).

Only 18% of Asian Americans work with a financial professional compared to 26% of the U.S. general population, although 43% of Asian Americans who don’t did indicate they are open to the idea. Reasons cited for not using a financial professional include “fees are too high,” “I don’t feel I have enough assets” and “I prefer to do it on my own.” More so than the general population, though, Asian Americans responded that they “have never found one I can trust.”

To improve trust, Reddy says advisers need to approach Asian Americans with a high degree of empathy, and approach them as a financial partner—not someone selling solutions. “Partner with them and understand their point of view about being savers first and investors second. Understand their desire to take care of generations above and below,” he adds. ”Don’t try to use fear as motivator; they are incredibly optimistic about their finances and U.S. economy. Talk about why certain behaviors are right.”

Reddy notes that Asian Americans prospects on average have $100,000 more to save than the general population. And, this is a population that was very tiny, but has grown in last 50 years to 20 million, and that is expected to double in the next 20 or 25 years.

Full survey results are here.

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