Data & Research April 25, 2016

Opportunities Exist for Advisers Among Career Military

Fewer military members contributed to retirement accounts last year, but working with an adviser improved outcomes.
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Retirement savings among America’s career military members was down in the last quarter of 2015, according to the First Command Financial Behaviors Index. Sixty-one percent of middle-class military families (commissioned officers and senior NCOs in pay grades E-6 and above with household incomes of at least $50,000) contributed to retirement accounts during the fourth quarter. That’s down 13 points from the third quarter and the lowest rate for the year.

The downward trend is expected to continue into the first quarter of 2016. The Index reveals that 37% of families say they expect to decrease the amount they put into savings and investments, down nine points from the third quarter.

This decline in behaviors and intentions is related to increased pessimism about the future. At yearend, confidence in the ability to retire comfortably fell 11 points to 48%, and confidence that family financial situations will improve in the next year fell nine points to 53%.

These fourth-quarter results pulled the overall Index score down 21 points to 137, the lowest for the year.

“These results represent a troubling new development in the financial lives of our career service members and their families,” says Scott Spiker, CEO of First Command Financial Services Inc. Spiker cites troubles that may be preventing better retirement savings such as cuts to military personnel costs, and reduced pay raises and housing allowances.

NEXT: Opportunity for advisersThe downward retirement savings behaviors represent an opportunity for advisers to help military members. According to the Index, 77% of those who work with an adviser contributed to retirement accounts in the fourth quarter, compared with 69% without an adviser. In addition, service members with an adviser put significantly more dollars into those retirement accounts. Monthly median contributions for savers in the two groups are $500 and $400, respectively.

Service members who work with an adviser are also more likely to contribute to short-term savings (79% versus 52% for those without an adviser). Monthly median contributions for the two groups are $500. Those who work with an adviser are also more likely to contribute to long-term savings (71% versus 61%). Monthly median contributions for the two groups are $500.

Commitment to reducing debt is also stronger among those who work with an adviser. They are more likely to pay down short-term debt (82% versus 78%) and long-term debt (78% versus 74%). Conversely, those without an adviser feel compelled to pay greater amounts towards their debt. Monthly median contributions to short- and long-term debt repayment are $1,330 for those with an adviser and $1,745 for those without.

Those who work with an adviser are also more likely to believe their financial situation will improve in the next year (59% versus 36%) and in their ability to retire comfortably (65% versus 27%).

“These results emphasize the significant contribution a financial professional can make in coaching service members to improve their money behaviors,” Spiker says. “Financial advisers are helping their career military clients take the kinds of positive actions that help consumers feel more confident in the future.”

Data & Research April 25, 2016

Researchers Find Potential Reason for Lack of Annuity Use

Language used to describe annuities should reduce the possibility of death-related thoughts, the researchers suggest.
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Mortality salience—increased accessibility of death-related thoughts—is a previously unexplored explanation for the low rate at which retirees buy annuities even though economists recommend annuities as an optimal decision, researchers contend.

Linda Court Salisbury and Gergana Y. Nenkov of the Carroll School of Management at Boston College, conducted several studies that found the task of choosing an annuity increases mortality salience by forcing people to consider their own death and motivates consumers to escape thinking about their mortality by avoiding the annuity option. The studies controlled for a number of relevant factors, including subjective life expectancy, mood, desire for flexibility and control, trust and age.

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In some studies, they used low mortality salience annuity descriptions, such as, “In return for that lump-sum investment, you receive a series of regular monthly payments each year you live, after which any remaining amount stays with the financial company,” versus, “In return for that lump-sum investment, you receive a series of regular monthly payments until you die, after which any remaining amount stays with the financial company.” The studies yielded an average 11.53% point decline in annuity choice rate when mortality salience increased.

The researchers contend their findings compel policy makers and annuity providers to develop practical approaches to decreasing mortality salience during the decision process. They also suggest further research should examine mortality salience’s effects on financial on decumulation decisions for employer-sponsored retirement plans.

The research report, “Solving the annuity puzzle: The role of mortality salience in retirement savings decumulation decisions,” posted in the Journal of Consumer Psychology, is here.

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