Different Saver Types Need Different Advice

A recent study by Nationwide Financial segments savers by retirement values and offers tips on how to use this information to better reach clients.

The five population segments identified by Nationwide are: live-wells (34% of population), present-focused (22%), self-sufficients (17%), homebodies (16%), and connecteds (11%). The company describes the segments as:

  • The live-well group is focused on themselves, not concerned about leaving money to their children or providing other types of assistance. They are involved in planning for retirement and want to maintain their lifestyle. They also plan so they can afford health care and nursing home options, if necessary.
  • Present-focused individuals are not as likely as other groups to look into the future. They are very focused on current needs and maintaining their current lifestyle. Therefore, they do not do much planning and are not concerned with health or nursing care issues, nor with estate planning.
  • The group labeled self-sufficients are focused on maintaining their lifestyle even if they have to give up luxuries. Those in this group want to stay in their homes. They are less concerned about leaving money to help their children and are more concerned about health care. They are also more likely to already be retired.
  • Homebodies are very home and families oriented. The people in this group expect to live shorter lives and are not very concerned with nursing care or health care. They are focused on their children and staying in their homes and believe they will both live on less money and spend less in retirement.
  • Those falling into the connecteds group are concerned about the care of themselves and their children. They are likely to work longer and are willing to sacrifice their home, possibly to downsize if need be. Although they do feel that it is important to have extras, they are looking to help their children and want to leave an inheritance. They are also concerned about health and nursing care.

Nationwide offered advisers suggestions to help clients in each segment make more strategic planning decisions:

  • Those in the live-well group, who want to afford all the extras and keep their current lifestyle, should be more aggressive in their investing and should be maxing out their 401(k) plans. They should also consider working a few years longer and possibly use annuities for part of their savings to guarantee income, the company said.
  • If working with a present-focused individual, an adviser can help them be more focused on health care, Nationwide said. This group can also benefit from the use of an annuity, and will also do well to work more closely with an adviser to evaluate savings and determine how the worker will be able to continue the lifestyle to which he is accustomed.
  • Those in the self-sufficients group will need to give up some little luxuries to save enough, the firm said. Since this group would like to stay in their home, this group can consider things like reverse mortgages as an income source.
  • Since those in the homebodies group also place a premium on remaining in their house, they might be interested in a reverse mortgage. They could also use a deferred variable annuity with living benefits or an immediate annuity for liquidity, Nationwide said. Another thing for homebodies to consider is to focus more on health care. Since this group is family oriented, they might want to gift money while still alive.
  • Connecteds can reduce taxes by gifting money to their children now, and can employ a more aggressive investing strategy to maximize the inheritance left to heirs, Nationwide said. To allow for some extras, those in this group might want to work a little longer and downsize their home.

How much to save
According to the survey, many retirees and pre-retirees are either very confident (48% and 45%, respectively) or somewhat confident (45% and 44%) that they know how much money they will need to support their lifestyle in retirement. Just over half (55%) of those workers not yet retired said they want to keep their lifestyle in retirement, and another quarter said they wanted to keep their current lifestyle for a while and then reduce it.

In planning for retirement, 61% of those surveyed anticipate annual gains of the stock market will most likely average 6% or less. After asking workers what the lowest amount of money they would have to spend each month to afford what they considered a minimal lifestyle in retirement, Nationwide found the median amount was $3,300, with 28% saying between $2,000 and $3,000 would be minimal and another 20% believing that between $3,000 and $4,000 was appropriate.

Using Monte Carlo simulations integrating median income, inflation and return estimates, and subtracting expected Social Security, Nationwide said that to have that median level of income, workers need to save about $400,000, a far cry from the median savings of $43,000 cited in Matthew Greenwald’s Retirement Confidence Study.

When to retire
The study shows that although 45% of workers prefer to retire before age 65, less than one-third of those surveyed believe that they will retire before 65. However, nearly half (43%) say that they will realistically think they will retire in the window of ages 65 to 67. Nationwide said workers are being realistic about retirement; more than half of retirees and those not yet retired have put a great deal of thought into when they might retire and generally their decision to retire is a result of considering a variety of issues. Issues cited include: inflation’s affect on lifestyle in retirement (considered by 88% of those surveyed); lifespan (77%); spouse’s lifespan (77%); market performance (76%); the possibility of changes in Social Security system (69%); and the possibility of changes in Social Medicare system (67%).

Current retirees said they retired mainly for emotion and desire; only 24% retired for financial reasons. Nationwide said this trend appears to carry over to those not yet retired: only 26% of those said they will retire because they can afford to. That being said however, the three most important goals to survey respondents are being able to afford health care (including nursing home care if needed), being able to stay in their home as long as they want; and being able to maintain their current lifestyle throughout retirement.