Data & Research February 21, 2007

Financial Advice Underutilized in Retirement Planning

Only 10% of U.S. adults planning to retire have worked with a financial adviser to develop a plan.

Reported by

The age demographic most likely to seek financial advice is age 45 to 54 – doubtless a combination of proximity to retirement, and the ability to have accumulated enough assets to warrant such counsel – but only 15% in that age bracket work with an adviser. College graduates and those earning over $75,000 are twice as likely to be working with a financial adviser on retirement needs (20% each vs. 10% of the total population).

“Getting advice from a financial professional is so important yet so few are tapping into that resource,” according to Natalie Jobity, Vice President of Financial Services at Harris Interactive, which conducted the poll, in a news release.

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Ninety percent of Americans plan to retire, but nearly a quarter (22%) have not yet begun to plan for that event. Significantly, nearly half (41%) of single households have yet to begin planning for retirement, according to a Wall Street Journal Online/Harris Interactive Personal Finance Poll that surveyed 4,037 U.S. adults.

401(k)s Top Savings Vehicles

The most common savings vehicle among those planning to retire was an employer sponsored account such as a 401(k), but that was only used by 29% of those surveyed. Twenty-one percent of adults opened a separate retirement savings account or a Roth IRA, and 20% are investing in taxable stocks, bonds, mutual funds or annuities.

The minority who are planning for retirement seem to be doing it early, the survey found; the median age for beginning retirement planning is 33.3 years old. The median age at which 18- to 34-year-olds begin planning is 23.6; for 35- to 44-year-olds it jumps to 29.1; for ages 45-54 it is 35.6; and for those ages 55 and older, the median is 42.8, according to the survey.

Planning for retirement also seemed to correlate with education level, as those with a high school education or lower are least likely to plan for retirement and respondents with a college degree and those with the highest incomes are most active in retirement preparation. Just thirty-five percent of respondents with a high school level education have started planning for retirement, half the level of those with a college degree.

Sixteen percent of those with a high school education or less say they do not intend to retire, compared to 10% of the general population, and one-third (33%) of respondents who make under $35,000 have not started to plan for retirement.

Data & Research February 21, 2007

Most in Gen X Saving for Retirement but Not in IRAs

Generation Xers might be more likely to save for retirement if IRAs were simpler.

Reported by

Alison Cooke

In a survey by Charles Schwab & Co. of 500 people aged between 25 and 40 found that, asked what they will do with their tax refund, 58% of people in this age group plan to use it to pay off debt, 59% plan to use the refund for other uses, and only 16% plan to use their tax refund to invest in an IRA or other retirement account.

Funding an IRA might become more attractive to those in this age group since the Pension Protection Act gives taxpayers the ability to directly invest all or a portion of their refund into an IRA, an option that appears on forms for the 2006 tax year.

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Although most Gen Xers say they taking some action to save for retirement (80%), only 40% of those who are saving have an IRA. Of those who are not investing in an IRA, they say they don’t need one, don’t have enough money to fund one, or believe the accounts are too complicated (Schwab recently unveiled a “15-minute IRA).

Make It Simple

Those in Generation X do not appear confident in their investment choices, however nearly half (44%) of those who do not currently fund an IRA said they would be more likely to invest in an IRA if there was a one-time investment choice, according to a Schwab press release. That perspective was shared almost equally between current IRA/401(k) investors (50%) and non-investors (39%). However, 20% of those in Generation X say they don’t know how an IRA works, or even what it is.

“Gen-X’ers are facing a range of financial challenges – from paying off college debt to making mortgage payments to saving for their families,” said Rande Spiegelman, vice president of financial planning for the Schwab Center for Investment Research, in a news release. “What we are seeing in these results is that competing spending priorities are impacting their ability to save for retirement. But with a few minor adjustments, younger investors can make the necessary changes to ensure they are doing everything they can to save for the future.”