Data & Research February 18, 2016

IRA Owners Prove to Be Diligent Retirement Savings Stewards

More than two-thirds have consulted an adviser to build a financial strategy.
Reported by

Nearly one-third of U.S. households owned individual retirement accounts (IRAs) in 2015, and a majority of them have developed a strategy for managing income and assets in retirement, according to the Investment Company Institute.

More than two-thirds of traditional IRA-owning households (68%) have consulted a professional financial adviser to build a strategy, according to ICI’s report, “The Role of IRAs in U.S. Households’ Saving for Retirement, 2015.” Eighty-two percent have taken three or more steps in developing a strategy, 76% have set aside emergency funds, 75% have developed a retirement income plan, and 75% have reviewed their asset allocation.

Among those with a strategy, besides consulting a professional financial adviser, 28% have turned to friends or family, 21% have accessed written materials such as a newspaper, 20% have used a financial website, and 9% have employed a financial software package.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

ICI also found that IRAs held $7.3 trillion in assets at the end of the third quarter of 2015, representing 31% of total U.S. retirement market assets—up from 18% two decades ago. Traditional IRAs are the most common type of IRA, held by 30.4 million, or 24.4% of, U.S. households in mid-2015. The next most common is Roth IRAs, held by 20.3 million, or 16.3% of, U.S. households.

NEXT: What fuels withdrawals?

IRA owners tend to hold onto their assets well into retirement, ICI found. The majority of traditional IRA withdrawals in tax year 2014 were made by retirees, most of which were required minimum distributions starting at age 70-1/2. These withdrawals were used for emergencies (cited by 65%), living expenses (62%), reinvestment (45%), health care (34%) or education (13%). Only 11% used their IRA money on a big-ticket item other than a home, such as a car or boat.

“IRA owners tend to steward their money to and through retirement,” says Sarah Holden, ICI senior director of retirement and investor research. “They plan and often research important decisions such as rollovers and withdrawals. Few tap into their IRAs before retirement, and most use financial advisers and other resources to develop strategies to effectively manage their savings and income in retirement.”

Despite the sizeable assets in IRAs, only 14% of U.S. households contributed to an IRA in tax year 2014, and very few eligible households made catch-up contributions. Rather, rollover activity continues to fuel IRA growth, ICI says. In 2015, almost half of all traditional IRA-owning households had IRAs that included rollover assets. More than two-thirds (69%) of rollovers to an IRA in 2015 were due to a job change, layoff or termination, while 34% were due to retirement.

When rolling over assets from their former employer’s retirement plan, 81% consulted multiple sources of information, with the majority consulting a professional adviser.

When asked for the reasons why they made the rollover, the three most common were: to obtain more investment opportunities (21%), not wishing to leave assets with their former employer (21%) and to consolidate assets (16%).

NEXT: Characteristics of IRA owners

People of all ages own IRAs, with older-working Americans being the most likely to own them. In total, 69% of IRA-owning households were headed by individuals 45 or older, compared to 28% of households headed by an individual 35 to 44 and 24% of households headed by an individual younger than 35.

More than 80% of IRA owners also have either a balance in an employer-sponsored retirement plan or defined benefit plan coverage. All told, nearly 75 million, or 60% of, U.S. households had retirement plans through work or IRAs.

The likelihood of owning an IRA increases with household income; 61% of households with income of $200,000 or more a year own an IRA. This falls to 56% of households with income between $100,000 and $199,999 and to 43% of households with income between $50,000 and $74,999.

IRA-owning households are more willing to take investment risk: In 2015, 30% of IRA-owning households said they would be willing to take above-average or substantial investment risk, compared to 21% of all U.S. households. This bifurcation has remained consistent since 2007.

The ICI study also found that the longer a household has owned an IRA, the higher its average balance. Those that have owned an IRA for 20 years or more have an average balance of $235,900, while those who have owned an IRA between 10 and 19 years have an average balance of $126,100. The average balance for those who have owned an IRA for less than 10 years is $69,400.

ICI’s full report can be downloaded here.
Client Service February 18, 2016

Broadridge Asks: Are You Selling a Retirement Experience?

Top advisers understand the importance of “the experience revolution” that has reshaped the way people shop for all types of goods and services—even defined contribution retirement plans. 
Reported by

In a new paper published by Broadridge Financial Solutions, “The Experience Revolution,“ researchers name and dissect the top trends impacting retirement advisory client preferences today—finding there is “clearly a revolution underway.”

“New technologies are empowering consumers and giving providers new tools to engage participants,” the report explains. “Expectations are changing. Consumers want a unified experience across channels, with proactive communication and customized interactions.” (See “Why You Can’t Ignore New Practice Tech.”)

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

This trend towards integration and optimization has been a long time coming in other areas of the economy, the researchers note, but it seems that only recently has the retirement space truly perked up its ears and gotten serious about leveraging “experiential technology” to enhance outcomes. Reflecting this trend, many providers are now creating and delivering innovative participant experiences in a scalable, cost-effective way.

Helping to drive this trend is that “incremental improvement is no longer enough” to keep clients happy, Broadridge warns. Just in the way Amazon has reshaped retail competition and Starbucks reshaped the coffee shop, so too will this new approach to retirement plan sales fundamentally alter the game of being an adviser. 

“Those who can connect with customers in a sustainable and meaningful way are building their brands at the expense of those who cannot,” the researchers explain. “And now, this revolutionary thinking has come to the retirement industry.”

Next: The key to selling ‘experience’

Playing the part of marketing guru, the Broadridge researchers outline “the four rules of customer experience.”

First, the success or failure of a given customer experience is always determined from the customer’s point of view—and this can vary dramatically from the point of view of the service provider. Second, customer experience is “about every way the consumer interacts with a brand either directly or indirectly.” Third, customer experience covers everything that happens between provider and client—planned and unplanned. And finally, “customer experience primarily depends on a culture of customer centricity—one that’s delivered each and every day to every customer.”

Contemplating these themes, one will see the overlap between “experiential selling” and modern digital marketing, Broadridge explains. In other words, the focus on customer experience “has coincided directly with the rise of the digital marketing organization.” 

“While its origin is in the design of ‘user experiences,’ digital marketing and service has since been embraced by many industries and many companies,” Broadridge explains. “Companies that are achieving digitization at scale have found a better way. They have developed a distinct structure that enables them to digitize their most important customer experiences at scale and at speed—in a consistent way, with consistent resources, to produce consistent results.”

In doing so, these companies “transform much of the rest of their organizations, from product and process design through to technology and culture, becoming truly digital businesses.”

NEXT: Bringing it all home for plan participants 

One actionable aspect of all this for today’s advisers is that the industry has “finally understood that retirement is not a stand-alone conversation.”

“To enable retirement readiness, each individual must stand on a foundation of financial wellness overall,” the researchers suggest. “Much as physical wellness programs have helped shape the future of health care, financial wellness programs can shape the future of retirement planning.”

This means the advisory client experience must be pushed beyond the “what’s my number” conversation, “to a dialogue about the income needed in retirement and the amount of income that savings can buy. This has resulted in a shift in our thinking from a ‘point in time’ conversation to a life-long experience and affiliation.”

Given the pricing compression across all aspects of the retirement industry, Broadridge concludes that today’s providers simply “do not have the luxury of producing ineffective or inefficient communications. Every interaction must count, and experiences must be designed based on a scalable infrastructure to deliver competitive value at a competitive price.”

Information on obtaining Broadridge research reports is available here.

«