President's Blog - Is Retirement the Elephant in the Room?
Has retirement in America changed? Is it still the target we all aim for? Or has a culture changed so dramatically that retirement is a pie in the sky that is no longer the No. 1 pursuit of affluent investors in the workplace?
Reaching that day when you no longer need full-time employment for financial purposes remains a goal for most investors, but it apparently is not front-and-center for many people who perhaps should be considering retirement as a motivation and as a possible outcome.
Several factors have altered the landscape of retirement in America. We project to live longer than our parents will or did, which means retirement at, say, 65 invites 20 years or more of post-employment life. Is it even possible to consider the amount of money one requires to live for 20 years without gainful employment?
The answer to that question is “Yes’’ with proper planning. But, time and again, Spectrem research indicates that retirement is not a focus for many affluent investors who should be considering a post-work life. While investors may have retirement in the back of their minds, they are not talking to their financial advisors about it.
One change in American employment culture that affects retirement planning is that in an overwhelming majority of households, both adults work full-time. In our study Successfully Growing Your Business with Wealthy Women
, exactly two-thirds of those women lived in a household where both adults worked full-time. Similar results have turned up in our other studies as well.
In that same study, the women were asked to define the American Dream. While 81 percent said the American Dream meant having the assets to retire on their own schedule, only 58 percent said the American Dream meant being able to retire at a preset, predetermined age. In both cases, the Millennial and Gen X women in the study were less likely to hold those beliefs.
Although there are more wealthy people in America today, planning for retirement while working has become a bit more challenging. More Americans today work for companies which either don’t offer employee-sponsored retirement programs or do not fund those programs as companies did 20 years ago. Pension plans are poorly funded or disappearing altogether. Benefits related to retirement and to health care have changed dramatically over time, so that planning of any sort becomes difficult when a full-time employee has to worry about the possibility of debilitating health care costs.
In Spectrem’s study Financial Behaviors and the Investor’s Mindset, of the Millionaire investors with a net worth between $1 million and $5 million who worry about having enough money in retirement, 75 percent of them are concerned health care costs will wipe out their retirement savings.
There are certainly millions of Americans who live paycheck to paycheck and cannot spend a moment considering retirement. But even the wealthier members of our society spend little time discussing retirement with their financial advisor.
According to Advisor Relationships and Changing Advice Requirements
, less than 50 percent of all investors, from those with $100,000 in net worth (not including primary residence) to those with $25 million in net worth have discussed retirement planning with their financial advisor.
How is that possible? Are investors not bringing it up because they don’t believe retirement is in their future? What possible reason is there for not having a discussion about retirement and retirement funding with the professional advisor whom they pay to consider their financial futures?
Is retirement the elephant in the room that nobody wants to discuss? What are investors afraid of?
It is up to financial advisors to bring up the topic of the eventuality of retirement. It is up to financial advisors to reduce the percentage of investors who have not discussed retirement planning. No matter what is holding investors back from discussing their post-work life, advisors must be proactive and ask the adult questions to better prepare investors for retirement.
Because, no matter how much employment factors and benefit packages have changed over time, everybody retires at some point.