Preparing for the financial constraints and freedoms of retirement are one of the key driving forces in the financial advisory industry. Even very wealthy investors worry at least a bit about maintaining their lifestyle in retirement, and for those investors who do not consider themselves wealthy, concerns about retirement are matched only by concerns about health.
Spectrem’s new study Defining Financial Planning looks into the pressures and needs which cause investors to establish a financial plan, as well as the types of advisors who provide those plans and the components of each investor’s financial plan. And the No. 1 reason that most investors (83 percent) decide to create a financial plan, either on their own or with the assistance of an advisor, is to create a set of decisions aimed at the financial demands of retirement.
For working investors, a financial plan is more of a guideline than a strict set of rules. It is designed to make certain investable assets are aimed in the proper direction to provide for all future financial situations.
For retired investors, the future is now, and the many components of the financial plan come into play: retirement funding, health care needs, or estate planning and wealth transfer. That’s why, as the Spectrem research showed, retired investors are more likely to have a financial plan.
According to Defining Financial Planning, 83 percent of retired investors have a financial plan. That compares to the two-thirds of working investors who have such a plan. However, 26 percent of working investors state they intend to establish a financial plan at some point in their future lives.
For advisors, that means there is a stage at which working investors decide they need a concrete plan in place for retirement finances. Advisors need to recognize when their clients are ready to make that leap.
It is interesting to note that 13 percent of the retired investors surveyed have no intention of ever developing a financial plan. That compares to only 8 percent of working investors who have that attitude.
The complexity and detail of a financial plan can impact the cost of the plan, but it also impacts the effectiveness of the financial plan. Retirees, who are more dependent upon the plan to provide the necessary financial support, have a more wide-ranging financial plan than do working investors, for whom growth holds precedence over both income and security.
According to the study, 81 percent of retirees have retirement planning in their financial plans and 79 percent have investment planning. Those percentages are very similar to the percentages of financial plans held by working investors.
But after those two components, retirees are more likely to have added functions in their plans. Seventy-one percent receive a statement of net worth (compared to 57 percent of working investors) at a time when their net worth is a more static number and more easily understood due to fewer moving parts. Other components which appear more often in a retiree’s financial plan are cash flow analysis (52 percent), estate planning recommendations and structure (49 percent) and household financial statement (50 percent). These are all components that a working investor is more likely to add to their financial plan as their age and working status dictate.
While retired investors are likely to have a more complete financial plan, they are less likely to need regular updates. Investors with frequent changes in income or investing priorities are more likely to require frequent updates to their financial plan. Retirees have fewer changes to deal with and thus require less frequent updates to their financial plan.
That being said, 36 percent said a change in marital status would cause them to request an update to their financial plan. Often, for retirees, that could mean a spouse has passed away, and many new decisions need to be made.
©2019 Spectrem Group
Keywords: retirement, financial planning, investors, advisors, spectrem, stock market