The Affluent Have More Aggressive Goals

As this group of investors increasingly finds its financial equilibrium, said the report, paying off debt slides to second place. The report also found that while preparing for retirement is a priority for both men and women, on average, men anticipate saving $232,000 more than women do even though both plan to retire at the age of 66.

“It’s encouraging to see that mass affluent investors are switching to a long-term view of their finances and that they are looking to place their debt behind them,” said Alok Prasad, head of Merrill Edge. “As the economy continues to come out of the downturn that began in 2008, this is a good time for both men and women to establish better money habits and set challenging, but realistic, retirement goals.”

The Merrill Edge Report Fall 2013, a semi-annual study of the financial concerns and priorities of the mass affluent (consumers with $50,000 to $250,000 in investable assets), also found that retirement goals vary widely from region to region within the United States. Respondents in the western U.S. have set their sights the highest, planning to save more than $1 million for retirement, while respondents from the Northeast revealed the most modest goals, anticipating to save around $500,000. In the second highest bracket, mass affluent in the South anticipate saving $780,000, and Midwest respondents are aiming to save $595,000.

Gap in Current Savings

When it comes to retirement, the report found that overall the mass affluent anticipate saving more than $700,000, but currently only have about $160,000 saved. This data suggests a gap between retirement goals and actual savings.

Even as the economy slowly improves, the number of respondents planning to delay retirement is still growing. Sixty-one percent of respondents now intend to retire later than originally anticipated, a 6% increase from the Merrill Edge Report Spring 2013. In addition, when asked what retirement investments the mass affluent are primarily using to prepare for retirement, 32% said a 401(k), 22% said personal investments (stocks, bonds, etc.) and 17% said an individual retirement account (IRA).

Teach Good Money Habits

Half of the mass affluent surveyed for the report said they learned financial literacy the hard way. After managing their finances through trial and error, 88% now believe that parents and grandparents should play a more active role in imparting financial knowledge to their children. Seventy-one percent also said that it is important to teach financial literacy lessons by the age of 18. In addition, 40% of the mass affluent get their financial information and guidance from a financial professional, while 28% seek advice from friends and family. This trend remains consistent with findings from the Merrill Edge Report Spring 2013.

“Investors of all ages are telling us that they want to take control of their financial goals while simplifying their financial lives,” said Prasad. “Whether it’s with an adviser, a friend, or online money management tools, mass affluent investors are taking a hands-on approach to saving and investing. And, with a lifetime of financial lessons learned, they want to pass their wisdom down to the next generation.”

When it comes to the day-to-day behaviors that lead to long-term financial success, of the 68% of respondents who have a monthly budget, nearly 90% said they stick to it. However, a generational gap emerged here. Eighty-three percent of Gen Y (ages 18 to 34) mass affluent are on a budget, while only 57% of those over age 65 are following a budget. However, both Gen Y and those over 65 are focused on meeting their long-term financial goals by living a more frugal lifestyle (37% of Gen Y, and 61% of respondents ages 65 and older) and paying off credit card bills each month (37% of Gen Y, 61% of respondents ages 65 and older).

Short-Term Debt and Long-Term Investments

The report revealed that the mass affluent have undergone a shift in their financial priorities since the 2008 economic downturn, moving their focus from shorter-term debt obligations, such as credit cards, to longer-term investments for retirement. Retirement is the top financial focus for the mass affluent today (39%), followed by paying down debt (26%). This represents a reversal of priorities from 2008.

Not only is retirement top-of-mind for the mass affluent, but they are becoming more aggressive in planning for retirement. Seventy-two percent cited saving enough to live the lifestyle they want in retirement as their top long-term goal. In addition, for the short term, the majority (77%) of the mass affluent are looking to actively grow their retirement nest egg in the next 12 months, with 30% already planning to put their tax refund toward retirement.

Forty-four percent of respondents said paying off debt was their top financial accomplishment within the past year. In addition, in terms of measuring financial success, mass affluent would sooner brag about being debt-free (26%) than about the size of their savings accounts (22%).

Children Living at Home

By financially assisting their children, the long-term financial progress that the mass affluent are making may be hampered. Many mass affluent say they are currently supporting their children and grandchildren financially or letting adult children live at home. Whether it’s because of need or generosity, the mass affluent plan to contribute financially to their family members by helping pay for their children’s college (41%), establishing savings account for their grandchildren (34%) and letting their children live at home after high school or college (27%).

Gen Y respondents showed they are more willing (44%) to let their future adult children live at home than other generations (42% of Gen X, ages 35 to 50; 31% of Baby Boomers, ages 51 to 64; 9% of respondents ages 65 and older).

Debt and College

Across generations, the mass affluent agree that a college education is worth going into debt for, and nearly a third plan to rely heavily on student loans. Despite the rising costs of a four-year college education, the majority of the mass affluent (63%) think it’s worth it for a parent and/or child to take on debt to attend college. There does not appear to be a generational divide on the subject, with large majorities of the mass affluent believing in the value of a college education.

On average, the mass affluent have saved or are planning to save about $63,000 toward their child’s college education. They plan to fund their child’s college education with a combination of personal savings (38%), scholarships or grants (37%) and student loans (31%).

For the report, Braun Research, Inc. conducted phone surveys on behalf of Bank of America between September 9 and 17, 2013. Those contacted were a nationally representative sample of 1,016 Americans with investable assets between $50,000 and $249,999, and oversampled 300 mass affluent in Los Angeles, Orange County, California, San Francisco, Dallas, northern New Jersey and southern Florida.

A copy of the report can be found here.