Aging investors recognize they may need to tap into accumulated savings rather than relying solely on work income. Yet older Americans talk about becoming “unemployable” instead of retirement.
“Pre- and post-retirees ages 53 to 75 don’t see themselves as senior citizens, a term they perceive as referring to sedentary or really old people” said Chris Brown, a principal of Hearts & Wallets. “Even though they may technically be eligible for senior discounts, they prefer language with positive associations to describe this time in their life. They get to do what they want and have more freedom. Financial services firms and advisers that use positive wording associated with freedom will have a stronger connection with this market segment.”
Three Major Types of Older Investors
Aging Americans are not all alike in how they want to balance work and leisure. The latest Hearts & Wallets Explore study, “Shining a Light on Pre- and Post-Retirees: What 3 Different Retirement Lifestyles Reveal about Language, Attitudes and Experiences with Advice and Retirement Income,” is drawn from nationwide focus groups that divided older investors into three main groups according to preference:
1) Full Steam Aheads—Plan to work at least part-time, to avoid mental deterioration and keep options open.
2) Balancers—View part-time work as an insurance policy for the future and a way to earn spending money.
3) Leisure Pacers—Plan to stop working (or already have), but are more involved with their finances now than ever before.
“It’s critical that financial services firms know their audience,” said Laura Varas, Hearts & Wallets principal. “Not all pre- and post-retirees have the same goals. Flexibility in messaging, financial plans and retirement income calculators are important to attract these investors.”
The study found a big risk in using inappropriate language. “The term ‘retirement income’ means three wildly different things to different types of older investors,” Varas said.
“Many firms think of ‘retirement income planning’ as a service that helps older Americans plan how to take income from their personal assets. But using one lifestyle segment as an example, Full Steam Aheads often think the term ‘retirement income’ refers to ‘entitlements,’ like pensions or Social Security. Since they tend to take responsibility for themselves and others, they don’t even think ‘retirement income’ applies to them. This misunderstanding is a tragedy, because many of these offerings are specifically designed to help people like them.”
The Myth of Asset Consolidation
Two factors signal trouble for financial service firms counting on retiree asset consolidation as prime new business opportunity. Many older investors established relationships with financial advisers when they were in their 40s. They also express a reluctance to consolidate assets with one firm. Only a minority of older investors will consolidate with a single provider.
“Retirement income services may help providers increase wallet share,” Brown said. “But they need to be careful about asking for everything. And they need to understand trust drivers and eroders.”
Investors have had bad experiences with advisers who put their own interests ahead of the client’s. Some still work with an adviser but put in extra hours checking up on adviser recommendations.
A few key trust drivers include an adviser who takes the time to get to know the client, and offers reasonable and clear fees. One of the key trust eroders is staff or adviser turnover. The study also details how investors connect with financial services providers and advisers. Many investors met their provider or adviser through a workplace retirement plan.
Receptivity to retirement calculators is mixed. Many like the ability to try on different decisions before actually having to make them. Others see them as rigged, prompting the investor to put more money into funds than is necessary.
Investor Receptivity to Three Retirement Income Concepts
The study examined techniques older Americans are using to generate retirement income today, their likes and dislikes, and language that might support optimal income solutions.
The study explored how older Americans are currently executing three popular techniques: establishing a guaranteed “Income Floor,” breaking up assets into time-based buckets that can be used in different periods of life, and sustained withdrawal, or seeking to take income from an overall diversified portfolio. The different types of older investors provided detailed responses to these concepts as well as a trust-services concept. There were some signs of thawing attitudes to annuities, which can fulfill an important economic function of providing steady income and pooling longevity risk. Unfortunately, consumer misfortune with poor business practices, such as over-engineering or excessive fees and sales commissions, means resistance runs deep. On the other hand, the 403b is perceived as positive, and the term income annuities does not hold the same negative connotations as annuities.