Advisers Can Break Down Savings Barriers

Having an actual plan makes a big difference to achieving retirement goals, and having an actual adviser makes a big difference in having that plan, research says. 

Nearly a quarter of Baby Boomers (22%) report having no savings for retirement, according to data from the “IRI Fact Book 2014” from the Insured Retirement Institute (IRI), which the institute is billing as a primer on the latest retirement income trends and strategies.

Among those Boomers who said they do have savings for retirement, four out of 10 reported having saved less than $100,000. According to “Age of Opportunity: Americans Transitioning into Retirement,” a study by The Hartford cited in IRI’s book, one in three retirees state that if they could change just one aspect of their retirement, it would be to save more money and be better prepared financially (see “As Long As They’re Healthy…”).

IRI contends that while automatic enrollment and automatic deferral escalation features in employer-sponsored retirement plans have helped retirement savings levels take an upward swing, they may still not be enough to ensure adequate savings. Individuals need to be more engaged in retirement planning, the report says. Seeking help from a financial adviser is one of the most effective ways for workplace savers to become more proactive, IRI says.

A number of factors—increased responsibility placed on individuals for structuring their own retirement income, coupled with the recent headwinds from the financial crisis, the subsequent recession, and a slow economic recovery—have created a set of economic conditions that have negatively affected the retirement savings behaviors of Baby Boomers, the report says.

In a section of the report titled “Barriers to Saving,” IRI examines some inhibitors to saving for retirement and how potential changes to tax policy can exacerbate these impediments. IRI researchers also explore how working with an adviser can help achieve desired levels of savings and how annuities can help as sustainable retirement income vehicles in the defined contribution plan context.

Key Findings

The “Barriers to Savings” section found the following:

  • 21% of Boomers have stopped contributing to a retirement plan;
  • 20% have had difficulty paying the mortgage/rent in the past 12 months;
  • 54% stated they would be less likely to save if federal income taxes increased; and
  • 39% stated they would be less likely to save if capital gains taxes increased.

Given the above findings, IRI recommends that tax policy should follow a do-no-harm principal, contending that tax increases will dampen Boomers’ retirement savings. If tax deferral for growth within retirement plans is reduced or eliminated, 40% of Boomers would be less likely to save for retirement.

Increases in federal income taxes and capital gains taxes would have an even stronger negative effect on Boomers’ retirement saving behaviors, IRI says. The reason for such negative effects on savings is that these increases would reduce the after-tax income of workers, putting additional stresses on already stressed family budgets.

There are ways to overcome the barriers, IRI says in its report. Those who work with an adviser and set up a plan tend to fare better. Among Boomers who work with a financial adviser, 74% had determined a savings goal. IRI found that having a plan for retirement increases retirement confidence levels. Nearly half of Boomers with a plan (49%) prepared by an adviser said they were extremely or very confident they will have enough money to live comfortably throughout retirement. In comparison, just 20% of Boomers whose advisers did not prepare a written savings and investing plan expressed confidence. 

Nearly 43% of Boomers who have consulted an adviser reported that they are very or extremely confident they will have enough money to live comfortably throughout retirement, compared with 33% who have not consulted a financial adviser. The difference in confidence levels stems from having prepared a financial plan with an adviser. IRI found that among Boomers working with a financial adviser, 75% stated that the financial adviser prepared a retirement plan.

The IRI Fact Book 2014 offers recent retirement income research, industry data and sales reports for the variable and fixed annuity markets. This edition focuses on explaining features of annuity products and outlines considerations for financial advisers for including insured retirement strategies in retirement income plans. The IRI Fact Book 2014 can be downloaded from the website of the IRI.