Taking the Leap into a Secure Future
How planning and professional advice may help ease the retirement burden
Posted by Sam J. Friedman, Insurance research leader, Deloitte Services LP on June 18, 2013
Did you know that more than half (58 percent) of Americas do not have a formal retirement income and savings plan in place? The results of a recent Deloitte Center for Financial Services study were eye-opening. One thing that was evident was the importance planning plays in how someone feels about his or her post-working future.
So why would planning matter so much when it comes to securing one’s future? Further, what can financial institutions do to encourage people to take the leap and put a savings and income plan in place?
According to the study, there are two big reasons why so many people don’t feel financially secure about their retirement. For one, they lack a formal plan, and for another, they don’t seek professional help to assemble one.
Additionally, nearly six-in-10 surveyed have not put together a formal retirement plan. This planning gap is wider among the younger respondents — rising to 65 percent among Generation X (those roughly between 35 and 45 years of age). Even among those close to or right at retirement age, only about half have a plan in place.
Figure 1: Percent who have a formal retirement plan by age group
Why is planning a big deal? Most important is that it improves retirement confidence. So much so that those with a formal plan are four times more likely to feel very secure financially (52 percent) about their retirement compared to those without a formal plan (only 13 percent).
Given this, should financial institutions, employers, and others who care about Americans’ retirement security encourage more consumers to put together a formal retirement plan? The answer, based on the Deloitte survey results, is a resounding “yes.”
Deloitte’s survey also suggests a relationship between the use of professional advisors and feelings about retirement security, with 40 percent of those using financial advisors describing themselves as very secure versus only 22 percent of those who do not seek professional advice. We suspect this may be because advisors help consumers think about retirement more systematically and encourage them to engage in behaviors that are beneficial to them in the long run.
For instance, nearly two-thirds of respondents with a financial advisor had a formal plan for retirement, versus only 28 percent of those without an advisor.
These data suggest more consumers should be seeking professional help. Of course, not everyone wants to or can afford to have advisors. But the more prevalent this practice is, the better for retirement security overall, it appears.
The challenge, then, is how to overcome this planning gap, along with five barriers we identified in the study, so consumers can adequately prepare for their retirement needs.
Stay tuned for upcoming blogs where we will address these barriers — conflicting priorities, lack of product knowledge, a failure to effectively communicate (particularly via the workplace), a lack of trust for financial services providers, and a ‘do-it-myself’ mentality when it comes to preparing for retirement— and how the industry may be able to help tackle these challenges.
In the meantime, feel free to review the entire report. You can also check out the Dbriefs produced on the survey and its implications. Also please feel free to tell us what you think – do you think retirement planning is a problem for Americans, and if so what suggestions should financial services organizations take into account to ease these concerns?