Few Boomers Believe Savings Will Last Throughout Retirement

Working with a financial adviser increases confidence, an IRI survey found.

The Insured Retirement Institute (IRI) has kicked off National Retirement Planning week with a release of findings of its 7th annual survey of Baby Boomers.

Cathy Weatherford, president and CEO, IRI, said during a media call, “We want to spark a national conversation about holistic retirement planning. We want to encourage Americans to save and equip them with resources to help them.”

Weatherford noted that the survey found 46% of Baby Boomers say they have no retirement savings—the highest percentage recorded in seven years. “Time is running out for Boomers, and we don’t get do-overs. “It’s imperative that Boomers start saving now, and we hope this week sparks that,” she said.

She also noted the survey found slight increases in contributions to 401(k)s and IRAs, and 59% of Boomers are planning to retire at 65 or later. “Boomers are gaining clarity on what retirement entails and setting retirement dates to reflect that,” she says. Weatherford added that roughly 60% have saved $100,000, but notes with that, they will still end up with a shortfall.

Asked what they wish they had done differently, Boomers said they wish they had saved earlier and saved more, she noted.

As they move into their pre-retirement and retirement years, most Boomers report insufficient retirement savings, and have not taken appropriate steps to plan effectively for their sunset years, the survey found. Only four in 10 have tried to calculate how much they need to save to retire, and of these only six in 10 included estimates of health care costs in their calculations.

Only 23% believe their savings will last throughout retirement, or that they have done a good job preparing for retirement. Paradoxically, however, six in 10 Boomers believe their retirement income will cover their basic expenses, with at least some leftover for travel and leisure activities. This disconnect between savings, confidence and expectations could result in many Boomers exhausting their financial resources during retirement, IRI says.

NEXT: Using a financial adviser helps

Those among the Boomer population who work with financial professionals have a much brighter outlook, the IRI survey found. Eighty-five percent of Baby Boomers who work with financial advisers believe they are better prepared for retirement because of that relationship, and more than 90% who work with financial professionals have retirement savings. Further, 75% of those individuals have saved $100,000 or more, compared to less than one-half of those without financial advisers.

During the media call, Jim Mullery, head of sales and distribution, Prudential Annuities, said the Prudential 2016 Retirement Readiness Survey found those who work with an adviser are better prepared both financially and emotionally.

The study polled more than 2,500 adults, and nearly three-fourths of pre-retirees agree they should be doing more, but 40% just don’t know what to do. Just 41% say they are experienced investors, and 47% say they are knowledgeable about financial products. More than 30% of pre-retirees gave themselves a ‘C’ for investing. But, among those who use advisers, more than 55% feel confident in reaching retirement goals.

“Start early, save more, and consult a financial professional is the advice they give younger generations,” Mullery said.

John Kennedy, head of distribution, Lincoln Financial Distributors, noted that the IRI study revealed seven in 10 worry about changes to Social Security that will affect income. “People truly need a financial adviser,” he said. “It used to be easier to create an income plan; rates were better than they are today. It used to be 4% was an acceptable withdrawal rate in retirement, but now that is too high to be safe. Economic pundits say retirees can safely withdraw less than 3%.”

Kennedy added that retirees need a plan that can last 30-plus years, and the need for guaranteed lifetime income has never been greater. However, consumers aren’t familiar with them and have perceptions of high cost, complexity and inability to get principal. Advisers are equipped to help people learn more and help them meet their retirement income needs.

NEXT: Annuities and health care costs

The IRI study reveals that 85% of Baby Boomers believe it is important to have a source of guaranteed lifetime income in addition to Social Security, but only 8% would consider purchasing an annuity.

When asked why this is so, Mullery told PLANSPONSOR, people are focused on getting to retirement, not through. “There is not enough education on getting through retirement. That is why people are not purchasing annuities,” he said. “There needs to be greater education. Annuities are more complex than ETFs or mutual funds, but they offer more."                 

Diane Garnick, chief income strategist, TIAA, replied, “One of the big barriers to people accessing lifetime income solutions is they don’t know how much they will need for basics as well as other stuff, like fun and grandchildren.”

Kennedy added that there are a lot of misperceptions about annuities—they have everlasting surrender charges and high costs. But, he said, products have evolutionized over the years; some products offer access to money, some are lower cost but not as robust with features and benefits. “There are so many variations. A financial adviser can go through those with people,” he said.

The IRI survey also found more than eight in 10 Baby Boomers underestimate the percentage of their income which may be needed for health care costs.

Tim O’Mara, vice president of Nationwide Retirement Institute, said most people don’t know the cost of just Medicare. And, he noted that Medicare covers zero long-term care. “People need to work with an adviser. There are tools they can use to map out health care costs,” he said.

More information is at www.irionline.org.