Client Service April 10, 2019

Parents and Kids Both Influence the Flow of ‘Modern Money’

Shifting attitudes about supporting adult children financially have helped reshape Americans’ thinking about wealth and retirement readiness, according to Ameriprise Financial survey data.

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Ameriprise Financial has released a new report, “Modern Money,” which compiles the survey responses of more than 3,000 U.S. investors ages 30 to 69 with at least $100,000 in investable assets.

In offering a sneak peek of the findings to PLANADVISER, Marcy Keckler, vice president of financial advice strategy for Ameriprise Financial, discussed how attitudes toward conventional financial goals such as homeownership, supporting children, and retirement have shifted across generations.

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“The study sheds light on how these changes impact investors’ relationship with money,” Keckler said.

According to the Modern Money report, 78% of investors say achieving financial success has been the same or easier for them than it was for their parents at the same age, but over half (51%) think it will be harder for the next generation in their family to feel comfortable financially.

As Keckler observed, many of today’s investors are providing financial support to their children at a higher rate than they received from their own parents. She noted that a lot of this has to do with the ballooning cost of a higher education.

“Nearly two-thirds of respondents say their parents helped them pay for their college education,” Keckler said. “When it comes to helping their own children pay for college, 87% of respondents say they have or plan to assist with this milestone.”

The data shows one out of three respondents say they have delayed their own retirement or would do so to help their kids with this expense; however, only 10% of respondents say their parents made this same sacrifice for them.

“Parents delaying their retirement to pay for their children’s college education could be a potential red flag,” Keckler said. “As individuals juggle competing financial goals, they should have a plan in place to ensure they’re not sacrificing their financial future in order to fund other priorities. You only get one shot at saving for retirement.”

Keckler said parents that feel squeezed between supporting their adult children financially and planning for their own retirement must push their children to live within their means and to understand that financial independence might require making compromises—for example attending an affordable university or choosing to have a small wedding.

The Ameriprise survey data shows more than half (54%) of respondents say their parents helped pay for their first car, but an even greater percentage (80%) say they either intend to or have already helped pay for their own children’s first vehicle. In addition, the study shows that financial support from modern parents often continues in adulthood. Investors have assisted or plan to assist their kids financially with wedding expenses (78%) and a first home purchase (40%).

Comparatively, when reflecting back on their experiences as young adults, 51% of respondents say they received help from their parents for their nuptials while only 19% received help from their parents for their first home.

One interesting finding is that the vast majority (92%) of respondents who met the $100,000 asset floor for participation in the survey report owning their home. Despite many viewing homeownership as a good investment, it is not the primary reason they bought their home, the report shows. In fact, the No. 1 driver is that it gives them “a sense of pride in being a homeowner.” The remaining 8% of respondents who identify as renters say the top reason they don’t own is that renting provides more flexibility. These investors are applying the money they could have used to buy a home toward other financial goals—71% are using the money to save for retirement, as an example.

Keckler said she was a bit surprised to see that families still largely remain “mum about money.”

“Half of investors think discussions around money are still as taboo today as they were a decade ago, but this sentiment is gradually shifting,” she said. “The Modern Money study reveals younger generations are more open to discussing money matters with others.”

On this point, the data shows 26% of Millennials surveyed said they talk with their friends about how much they spent on a major purchase, compared with 18% of Generation X and 12% of Boomers. Millennials are also more likely to talk with their friends about their salary and how much money they have invested, compared with Gen X and Boomers.

“Talking about money pays off,” Keckler concluded. “Our research finds that investors who have more financial confidence are more likely to speak with others about money. Consulting a financial professional may be a good place to start, especially for those who find this topic difficult to discuss.”

Additional findings and information about the study are available at https://www.Ameriprise.com/modernmoney/.

Client Service April 10, 2019

Addressing Participant Longevity With Plan Design and Advice

Robert Scheinerman, president, AIG Retirement Services, says smart retirement plan design, access to advisers and passage of pending legislation can help Americans have enough money for a 40-year retirement.

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More than half (53%) of Americans surveyed by AIG Life & Retirement said their goal is to live to age 100. However, this optimism for aging—fueled in part by medical advances and healthier lifestyles—is tempered by the financial challenges individuals may face in a retirement that could stretch 40 years or more.

Robert Scheinerman, president, AIG Retirement Services, formerly VALIC, based in Houston, says he was surprised by how many people want to live to 100. “It dispelled myths about old age and how vibrant people are for a longer time,” he says.

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The Plan for 100 Survey found more than half (51%) of respondents are uncertain their current retirement savings plan would financially provide for a 100-year lifespan. Less than one in 10 (9%) are extremely confident they will have enough income throughout their retirement.

When asked to pinpoint their greatest concern about living to 100, the potential for serious health conditions (35%) topped the list, followed by burdening their family (27%) and running out of the money needed to live comfortably in retirement (25%). When considering financial concerns, generating lasting retirement income (23%) and the rising cost of health care (23%) tied as the most significant financial challenge Americans said they would face when planning for retirement. These challenges were followed by concerns about Social Security and Medicare (19%) and stock market volatility (19%).

Due to stock market volatility, 86% of respondents confessed to anxiety about funding their retirement lifestyle through their retirement account investments, which typically include stock market exposure, as opposed to a guaranteed source of income. Results show that even a little more certainty can go a long way; six in 10 said $10,000 more per year of guaranteed retirement income would help ease their minds. Additionally, 75% of survey respondents said guaranteed income every year for life would give them greater levels of happiness and satisfaction in retirement.

Finally, when asked whether they believe their current retirement savings plan will sustain them financially until the age of 100, respondents with advisers are significantly more confident than those going it alone, the survey found. Nearly half (45%) of those with advisers are very or extremely confident, compared to only 8% of do-it-yourselfers. In fact, working with an adviser allays financial fears about growing older; nearly two-thirds (64%) of respondents with an adviser say they want to live to 100, compared to only 37% of those without an adviser.

Planning for 100

The survey was conducted as part of the launch of AIG’s Plan for 100, an initiative focused on educating and empowering individuals, employers and financial advisers to help Americans prepare for longer lives and, in turn, retirements that could last four decades or more. The initiative includes the launch of a new website (Planfor100.com) and podcast series to raise awareness about the impact of increased longevity and educate Americans about potential solutions.

Scheinerman says staying healthy will help Americans with health care expense concerns.

But, the first thing plan sponsors and plan advisers can do to help employees plan for living to 100 is use smart plan design; automatic enrollment and automatic escalation makes it easy for people to build up savings. He suggests plan sponsors and advisers set a target for an ideal amount to save— 15%—but plan to get there over time to make it painless for retirement plan participants. He also notes that stretching the employer match formula can encourage people to save more.

“Good educational tools to learn about the importance of savings and how to invest, as well as access to advisers can make a big difference,” Scheinerman says. “Getting a professional to coach participants along the way is good to help them with matching health and savings with their retirement expectations.”

As for the expressed desire by respondents in the Plan for 100 survey for guaranteed income, Scheinerman says what needs to happen is first to make sure participants have accumulated enough money. Then there is a role for legislators. “RESA [Retirement Enhancement and Savings Act] is a very good first step to encourage small employers to have a plan, while also creating safe harbors for plan sponsors to put guaranteed income products in retirement plans,” he says.

Scheinerman adds that it is incumbent on employers to drive good health and adoption of retirement income, as more confident and relaxed employees will be more relaxed and productive at work.

He says employee anxiety is a motivator. It can motivate plan sponsors to look at their plan designs, offer education and offer access to advisers to help employees have more savings, “just like employees are well cared for by doctors for health.”

According to Scheinerman, one cause for anxiety may be that employees already in their 40’s or 50’s haven’t started on planning for or saving for retirement yet. He encourages that group to get started as soon as they can. “It’s often not as hard as they think. They should sit down with a professional to create a plan, and they may have to make some changes in finances. At whatever age employees get started, they need to develop a plan and have a strategy,” he concludes.

The AIG 2019 Plan for 100 Survey was conducted online within the United States by Michael Finke, Ph.D., The American College of Financial Services, in December 2018 and January 2019 among 1,012 U.S. adults ages 40 to 74 who have at least $50,000 in retirement accounts.

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