Pre-retirees may have a grasp on how they could manage money in retirement, but their actions and confidence do not necessarily suggest the same, according to new research from LIMRA.
The organization’s “Retirement Income Readiness Report,” published August 5, stated that 88% of retirees have thought about how they would generate income in retirement, yet half lack a recently updated written retirement plan, and only 40% work with a financial adviser. The result, LIMRA’s report stated, is a “retirement confidence gap that savings alone won’t close.”
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The study concluded that as people live longer, as health expenses rise and as the future of Social Security and Medicare remain uncertain, the way Americans have thought about retirement preparedness has fundamentally changed. Cost-of-living pressures, cited by 43% of pre-retirees, and longevity worries, cited by 30%, were the most common worries, persisting even among those who considered themselves financially prepared for retirement.
Plans Make a Difference
Bill Nash, a LIMRA vice president and its head of member relations, says working with an adviser and having a written retirement plan are key differentiators in determining whether a participant is prepared for retirement.
Of pre-retirees working with advisers, 77% expressed “high retirement confidence,” meaning they scored 7.0 or higher on a 10-point scale, Nash explains. In comparison, only 47% of those without an adviser reported the same levels of confidence. Among retirees, the differences were similar: 81% of people who reported that they worked with an adviser expressed high retirement confidence, compared with 54% for those without an adviser.
Only 40% of participants without a written retirement plan reported high confidence, compared with 71% of those who had a written plan and spent only less than 5 hours on it, LIMRA’s report showed. Cohorts who spent at least 5 hours on their written plan had confidence ranging from 71% through 79%.
Sentiments About Retirement Income
LIMRA’s research also found that consumers who “actively learn[ed] about retirement income strategies” reported feeling more prepared for their future.
Nearly three-quarters of pre-retiree respondents said they wanted to learn more about retirement income options. Some 78% of those with a pension and/or annuity reported high levels of retirement preparedness, compared with 50% of those without either—demonstrating the boost in confidence that learning about and adopting a guaranteed income product might yield. Among pre-retirees, 93% of those reporting high retirement preparedness had taken steps to learn about retirement income, compared with 67% of those reporting low preparedness.
Despite the interest in retirement income, only one-quarter of pre-retirees said they believed retirement income would cover essential living expenses in retirement. Slightly more than half (52%) of current retirees said their basic living expenses are fully covered by lifetime income today.
The three highest barriers to considering or obtaining lifetime income products, according to surveyed pre-retirees and retirees, included worrying about fees or costs (cited by 35% and 21%, respectively), keeping control of savings (27% and 25%), and being concerned about “locking up” their money (26% and 19%). Nash suggested the industry consider these barriers as opportunities to educate participants on income planning, withdrawal strategies, longevity protection and retirement stability.
“What we need to continue to do is evolve on the education front and … help [participants] know what their options are,” Nash says. “We have to get back to treating protected income as core, not necessarily niche.”
LIMRA fielded its U.S. Consumer Sentiment survey, upon which the report was based, in April among 486 U.S. pre-retirees (employees at least 45 years old who reported planning to retire within 10 years) and 804 U.S-based retirees.
