The primary source of income for retirees comes from their investments, according to new research conducted with Retirees by Spectrem Group. In fact, Retirees indicated that almost 60 percent of the income comes from after-tax investments they own. Another 19 percent comes from an annuity and 17 percent comes from real estate investments. Only 8 percent have income that comes from a trust.
The data is from a study of 846 Retired individuals, all of whom have been retired for more than 5 years. None of these individuals had the benefit of a pension plan and had only a defined contribution plan during their working years. The results are not inconsistent with other Spectrem research which indicates that a significant percentage of investors, even in the Mass Affluent market, own investment real estate that they rely upon for income. It was surprising that almost 20 percent of Retired investors own an annuity. In fact, many of these investors recommended that non-retirees consider if an annuity is appropriate for them.
Those who are contemplating retirement anticipate that an even greater share of their income will come from investments. In the same research, Spectrem interviewed approximately 750 individuals contemplating retirement within the next few years and found that they anticipate that 77 percent of their income will come from their investments. Additionally, 46 percent believe they will receive income from an annuity and 29 percent will receive income from investment real estate. Only 6 percent will receive income from a trust.
There are significant implications for financial providers within this research.
-First, it is critical that investors, both those already Retired and those soon to be retired, understand how to structure their portfolios appropriately so they can rely upon income, probably through dividends or interest payments on bonds.
-Secondly, a significant number of the soon to be retired are expressing interest in an annuity. For the most part, they have not yet purchased those annuities. Financial providers need to meet with these individuals to determine if an annuity is appropriate based upon their overall portfolios and retirement needs.
-Finally, with the recent drop in the markets, investors will be looking for someone to help them assess whether their monthly income will be changing due to the market volatility. Even a word of comfort or assurance will strengthen the bond an investor may have with a financial advisor or provider.
Income in retirement will become an increasingly important factor in the success of financial advisory firms. The ability to assist individuals with this critical issue will provide significant opportunity to firms who are able to clearly explain the related issues to investors.
For more information regarding Spectrem’s Retirement Income Gap Solution report, please click here.