Most Americans who work their entire adult lives look forward to retirement. For some, it is a chance to see the world, and for others it is a chance to finally relax. While the concept of retirement is different for almost every retiree, it is consistently approached with optimism and enthusiasm.
But retirement is not going to be as much fun if finances cause headaches on a daily basis. For many investors, advisors make continued recommendations in an effort to create some financial solvency and comfort for those investors once they leave the workforce. Even when there is some blowback from the investor, who claims retirement is nowhere on their personal horizon, advisors need to push the concept, explaining that those who have retirement funds enjoy themselves so much more in retirement than those who put off retirement funding decisions.
But there is another aspect to retirement planning that advisors may not consider.
Thanks to improved health care, retirees live longer than they used to, which means retirement can be a much longer period of time than some investors anticipate. It’s no longer enough to make sure a retiree has 10 years of income protection; investors and advisors both need to realize that it is not unusual for an investor to spend 20 or more years in retirement, and funds need to last that long.
Spectrem’s latest study on retirees – Financial Wellness in Retirement – surveyed retirees who seemingly had their financial house in order heading into retirement. There were three segments of retirees surveyed – those retired for 20 or more years with at least $500,000 in net worth, those retired for 10-20 years with $750,000 in net worth and those retired less than 10 years with $750,000 in net worth.
We also did one-on-one interviews and focus groups with retirees similarly segmented.
While the study found that there was almost universal agreement that retirement was not only positive for those with ample funding, it was better than anticipated. But one insight that came from the study is that retirees who are 20 years or more into their post-work life are less pleased than those who are more recent retirees.
There are examples throughout the report. Retirees 20 years into their retirement often lose spouses or partners to death, they simply are not as happy in retirement as are the younger retirees, they have more health concerns of their own, and they are often unable to physically do the same activities they did when they first entered retirement 20 years ago.
More directly important to advisors is the fact that for some reason retirees 20 years in are less likely to be using the same advisor they used when they first retired. Also, they are less likely to be using an advisor than those with less time in retirement. This point is in direct conflict with the fact that retirees 20 years into their retirement are more likely to have money problems, as their retirement funds continue to dwindle.
Advisors make a good faith effort to prepare investors for retirement by building savings and retirement income streams. They often help investors with Social Security benefit questions, and they can assist with decisions related to taking drawdowns on retirement funds early in the retirement process.
But they may forget about retirees when they have been in retirement for many years. Those same retirees may be reluctant to contact an advisor because they perhaps have not used one on a regular basis for many years when retirement funds were adequate and those other concerns listed above had not yet cropped up.
In the one-on-one and group interviews Spectrem conducted on this subject, the retirees who had advisor assistance preparing for retirement were generally pleased with the help they got. Others, however, chose to go it alone and make their own decisions without the assistance of advisor for whatever reason.
But few retirees are going to think 20 years down the road. They are happy to have reached the retirement stage of their life and looking forward to that travel and recreational time.
One retiree put it succinctly when discussing his current money problems when he said “I didn’t think I would live this long.”
Advisors need to prepare investors for the pleasant possibility that retirement could be a 20-year stage of their lives.