When financial advisors consider the potential of investors as valuable clients, they think about the growth that exists in the income of working investors as they move through the professional ranks of their careers.
But it is important for advisors to remember that while retired investors have reached their economic potential from an income standpoint, they are holding on to a great deal of investable assets that can be used to create greater financial security, not only for the retiree but for that investor’s family as well.
Sometimes, the important numbers are not the ones in the future, but the ones in the present.
Spectrem’s annual study on portfolio holdings of investors once again shows the vast wealth that exists among investors who are no longer working. Much of Spectrem’s research examines the percentages of investors invested in one product or another, but Asset Allocation, Portfolios and the Perception of Providers reminds advisors of the sheer amount of dollars retired investors have already placed in investment products over time.
For example, investable assets as a percentage of an investor’s total assets is a great place to start. Among working investors, investable assets are 57 percent of their total assets, in part because they are still paying off mortgages and college educations and have other liabilities which retired investors do not have. That’s why retired investors on average list 71 percent of their total assets as investable assets.
The amount of funds retired investors have in Individual Retirement Accounts and 401(k) accounts is much higher than the amount of funds in those accounts for working investors, who are still making contributions to those accounts. On average, retired investors have $743,000 in rollover IRAs, and still have $570,000 in employer-sponsored defined contribution plans.
On the other side of the ledger is the liabilities that exist among retired investors, and a comparison with working investors demonstrates the flexibility that exists for retired investors to possibly adjust their investment allocations. On average among retired investors with a net worth between $100,000 and $25 million, only 23 percent are still paying off a first mortgage (compared to 48 percent of working investors), only 18 percent are still paying off cars (compared to 24 percent of working investors), and only 22 percent have notable credit card debt (compared to 31 percent of working investors).
There are dozens of examples in the study of the sizable sums retired investors have in investment accounts, sums which advisors should look at to determine if they can be reallocated to provide greater income or security. Real estate holdings, for example, are an area where retired investors have dedicated a great deal of investable assets, including rental residential property ($615,000 mean value among retired investors), and almost half a million on average in commercial real estate.
One recurring theme among retired investors is the concern that they are an afterthought among financial advisors because their growth potential has stopped. But retired investors have sizable portfolios that require a regular examination to determine if those investable assets are being utilized toward the best possible outcome.
©2019 Spectrem Group