Advisers Unable to Quell Health Care, Inflation Fears

Nearly half (46%) of pre-retirees and more than one-quarter (28%) of retirees who use financial advisers surveyed reported that neither they nor their adviser have developed a formal retirement income plan.

A survey of pre-retirees and retirees that use financial advisers sponsored by MFS Investment Management says that unexpected health care costs and inflation are the top concern for pre-retirees and retirees, with more pre-retirees viewing each with greater concern than retirees — 70% to 60% for health care expenses and 64% to 50% for inflation, respectively.

“Inflation concerns — be it outliving ones’ savings, unexpected health costs or lost purchasing power — are clearly on the minds of today’s pre-retirees,” said William Finnegan, Senior Vice President and Director of Global Retail Marketing for MFS, in a press release announcing the survey results. “We recommend advisers and their clients develop a retirement policy statement, just as they would an investment policy, tailored to the needs and risk tolerance of their clients, which can serve as the basis for a plan designed to help a client’s nest egg continue to grow – keeping pace with inflation while generating the income necessary to meet the challenges of the rising costs of everyday expenses.”

According to MFS, financial advisers have a “tremendous opportunity” to engage their clients in retirement income planning because the survey found that once a conversation about retirement income planning took place, both pre-retirees and retirees took action:

  • Half changed investment allocations (53% pre-retirees, 52% retirees);
  • One-third (32%) of pre-retirees increased their savings;
  • About three in ten consolidated assets to one adviser (27% pre-retirees, 30% retirees).

“Once pre-retirees have engaged an adviser regarding retirement income, many take action,” concluded Finnegan. “In the coming decades, today’s pre-retirees will redefine what it means to be “retired” and extending the planning conversation well into their golden years may benefit them and provide market opportunities for advisers and planners.’

According to the survey, existing retirees retired at an average age of 58, with 40% relying on their pension as the primary source of income. In line with concerns about health care and inflation, pre-retirees reported expecting to work on average a full ten years (age 68) later than current retirees, with roughly the same number relying on pensions (23%) as on workplace retirement plans (25%). While approximately one-quarter (24%) of today’s retirees continue to work or worked early in retirement, nearly half (47%) of pre-retirees expect to continue to work in the early phase of retirement. Of those surveyed, 32% of pre-retirees plan to work throughout their entire retirement as well.

“Baby boomers are going to redefine retirement, and financial advisers need to deepen their involvement in the planning process,” Finnegan added.

The MFS investor survey was conducted in September 2007, with responses from 204 pre-retirees and 229 retirees, between the age of 55 and 75, who were either working full-time or retired, used a paid financial adviser, and reported at least $100,000 in investable assets (excluding retirement and real estate).