Older Americans Have Learned to Balance Income and Spending

A survey from the Society of Actuaries suggests that if retirees are able to survive financially to age 85, concerns about finances drop significantly.

Seventy-eight percent of retirees ages 85 and older say they are at least somewhat secure in their finances, with 33% reporting they are very secure, according to a Society of Actuaries (SOA) survey.

By comparison, the SOA’s ninth biennial Risks and Process of Retirement Survey identified an overall increase in the level of concern for finances among respondents ages 40 to 80. A significant number of retirees and pre-retirees reported in that survey that they feel unprepared to navigate financial shocks and unexpected expenses.

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The new survey suggests that if retirees are able to survive financially to age 85, concerns about finances drop significantly.

Most of those ages 85 and over are comfortable with their finances for a couple of reasons: They have a shorter time horizon than at an earlier stage of retirement and no longer think about longevity as a big factor in their finances, and they also tend to be frugal and don’t have a large amount of expense to cover. “These older Americans have learned to balance income and spending in the short run, and this has become integral to their financial management process,” the survey report says.

Almost all respondents (96%) receive Social Security income and about half (53%) receive income from a pension. The SOA found that even though most have incomes of less than $2,000 per month, they usually do not spend more than their income. Most report spending less now than they did in the past, especially on travel and entertainment. And, while most have far fewer assets than might be recommended, they use these assets as an emergency fund that they don’t tap often at their current age except to take the required minimum distribution, which they don’t necessarily spend.

Those 85 and older do not often report that financial shocks, such as increased utility bills (23%) home repairs (13%), medical expenses (19%), car repairs (5%), or dental bills (13%), have a major impact on their finances.  In comparison, 61% of pre-retirees and 47% of retirees feel unprepared for expenses in retirement that could deplete their assets, based on the previous SOA survey of consumers ages 45 to 80.

Eighty-six percent of retirees ages 85 and older report receiving no financial aid support from family, although 32% receive support with physical activities such as transportation, meals or household chores.

While the SOA did find greater financial security among older retirees, one thing it found lacking was preparation for long-term care needs. Despite the relatively modest asset levels of the population sampled, a significant number feel that they can save for long-term care by cutting back on spending and putting money away. “Some of the unrealistic financial expectations of this population may stem from a lack of acceptance of what long-term care may involve some day… A significant number of those ages 85 and over receive some type of physical support from their children. The in-depth interviews suggest that many understand that the level of support will have to increase as they age—they simply don’t understand how extensive the help needed would be in the event of a major physical or mental decline. While most people would prefer to be cared for at home, among adult children who have parents requiring care, most of those parents ended up in assisted living or a nursing home. It seems that the care pieced together by aides/home health workers and children eventually falls apart. Thus, while most of those 85 and over can manage financially while healthy, they are not prepared for the financial burden of intensive care,” the SOA says.

But, the findings suggest hope for future generations. More than one-quarter of adult children say that caring for a parent has taught them to better prepare financially.

Advisers Believe AI Will Create Competitive Advantage

They plan on using it to better understand clients’ needs.

Two-thirds of registered investment advisers (RIAs) and fee-based advisers believe Artificial Intelligence (AI) will give them a competitive advantage, a survey by Nationwide Advisory Solutions found. Among the 33% who are early adopters, 94% of this group believe AI gives them a competitive advantage.

The way advisers are using AI is to transform every aspect of the customer experience, attract a new category of future clients and open the door to a new universe of products and solutions.

“Once the exclusive domain of large institutions with deep pockets, and most recently utilized by consumer giants such as Amazon and Apple to ensure ease of use and customer satisfaction, RIAs and fee-based advisers are now adopting Artificial Intelligence to enhance the human connection with clients—and gain an edge over the competition,” says Craig Hawley, head of Nationwide Advisory Solutions. “RIAs and fee-based advisers are leveraging AI to understand clients, predict their priorities and provide holistic financial planning.”

Artificial Intelligence uses advances in machine learning, including refined algorithms, predictive analytics, natural language processing, speech recognition and image recognition to asses big data from disparate sources, evaluate complex problems and help advisers make more accurate decisions. While only 33% of advisers are currently using AI, 51% plan to begin using it or expand their use of it in the next 12 months.

Among the early adopters, 88% began using it in the last 12 months, and 84% plan to expand their use of it in the next 12 months. Thirty-seven percent of the early adopters say their profitability will expand substantially in 2018; by comparison, only 22% of advisers who are not using AI say the same. Thirty-four percent of the early adopters say they are optimistic about the financial outlook for 2018, compared to 26% of the advisers not using AI. Fifteen percent of the early adopters manage more than $250 million in assets, compared to 11% of the advisers not using AI. In addition, 16% of the early adopters earn more than $500,000 a year, compared to 11% of the advisers not using AI.

Among the investors, advisers, and early adopters who believe that Artificial Intelligence will improve the adviser/investor relationship, all three groups say that the top ways AI will improve this relationship include increasing accessibility and affordability of financial planning (46%, 42% and 40%), and making accurate predictions about clients’ future needs and behavior (39%, 38% and 38%).

Thirty-seven percent of RIAs and fee-based advisers, and 50% of early adopters say AI will help them protect clients’ assets against market risk. In addition, 35% and 48%, respectively, say AI will help them understand clients’ current needs and behaviors, clients future needs and behavior (33% and 41%) and to provide more personalized, holistic financial planning (27% and 36%).

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However, 54% of investors say there are cyber security risks associated with their sharing personal and financial information.

The Harris Poll conducted the online survey of more than 1,700 advisers for Nationwide Advisory Solutions in January and February.

 

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