Affluent Retirees Worry about Retirement Savings

Since the market nosedive, surveyed affluent retirees with advisers expressed lower levels of financial comfort, greater concern about further major market declines, and higher interest in guaranteed income streams for retirement, according to a release of the survey results. Furthermore, a quarter of respondents will increase communication with their financial advisers and only a slim number will change advisers (2%) or move to a self-directed approach (1%).

Advisers recently surveyed by OppenheimerFunds reported similar observations about their clients in the high-net-worth space (see “Advisers Focus on Wealth Preservation, Asset Allocation“). It should be noted that many investment companies (including MFS) sponsoring the research are interested in marketing guaranteed income products. However, the results of research show that many investors are showing a slight increase in interest for guaranteed income since the market fluctuations of the last year.

Before and After

MFS sampled the same demographic in August and October and found a difference in its response. MFS said the market decline that began to accelerate in September had a clear impact on respondents’ concerns about their retirement savings.

The percentage of respondents who were either extremely or very concerned about a major decline in the stock market rose by more than half, to 65% in October from 42% in August. Those who were similarly concerned about investing too aggressively more than doubled, to 23% from 11% earlier. Concerns about outliving retirement savings rose to 25% from 13%.

According to the results, in the October sample, significantly more respondents than in August said they would have taken fewer risks with investments (17% versus 9% earlier);
spent less in retirement (11% versus 6%); and invested in principal protection or income guarantee products, like annuities (12% versus 9%).

In October, more respondents ranked guaranteed payment stream as the single most important factor when choosing an investment (35%, up from 23% in August). By contrast, 24% in August picked ability to make decisions about how money is invested, diversified, and allocated as the most important factor; in October that response had declined to 19%, according to the release.

Retirement Planning

Respondents who had detailed savings and retirement income plans were more likely to express that their retirement satisfaction had exceeded their expectations, the release said. Among respondents to this year’s survey who expressed that they were either “extremely satisfied” or “very satisfied” with their retirements, the most frequently cited characteristics were:

• retired when or later than they had planned (89%)
• $1 million or more in household investable assets (88%)
• had a detailed saving plan (88%)
• have a detailed retirement income plan (88%)
• retired voluntarily (86%)
• have a pension (85%)
• don’t support parents or children (84%)

Those most likely to express disappointment with their retirements, by contrast, most frequently cited having retired involuntarily (21%), having debt (13%), and retiring sooner than expected (11%). The group with investable assets of $750,000 to $999,999 was the most likely to express disappointment, at 12%. Interestingly that asset bracket was more likely to be disappointed than respondents with $500,000 to $749,999 in investable assets.

“A substantial number of respondents retired involuntarily or earlier than they expected,” said William Finnegan, senior vice president and director of Global Retail Marketing for MFS Fund Distributors. “Given the high correlation of this group with those who found retirement more challenging or less satisfying, we can conclude that it’s never too early to start discussing retirement income planning with your adviser. This is only amplified by the market conditions we have seen over the past three months.”

More than a third of the affluent retirees surveyed (37%) have worked in retirement, with the majority of them saying they have done so to stay involved rather than because they need the money. Fewer than one-fifth of those working said they did not expect to work in retirement, according to the survey.

The survey was conducted through Northstar Research Partners among a sample of retirees aged 55 to 75, who use a financial adviser, who retired in 2003 or earlier, and who had $500,000 or more in household investable assets, including retirement funds. Following the initial survey in August, a second round of surveying among the same demographic was done in October to gauge respondents’ reactions to the market decline.