Investing for Retirement


Not having to worry about alarm clocks and work clothes are just two of the countless reasons why many wealthy investors spend their entire working lives looking forward to retiring.  Even among those lucky individuals who enjoy what they do for a living, there is something satisfying about being able to self-determine how one is going to spend the day. It is important to have properly financially prepared for this transition into retirement, so the time in retirement can be everything each individual wants it to be.

The first step in being prepared for retirement is developing a plan. Retirement is often the catalyst for many investors to begin the financial planning process. Spectrem Group’s recent research with wealthy investors revealed that 83 percent of investors reason for initially seeking out a financial plan was to be prepared for retirement. Second to that reason was that it is important to be financially prepared for the future, which could also arguably have a component of retirement in the thought process, since retirement is in the future for many investors. Seventeen percent of wealthy investors develop a financial plan because their financial advisor recommended it. After those three primary reasons for initial financial plan creation the other reasons are identified by fewer than 10 percent of investors as the reason for initially seeking out a financial plan.

With the financial plan created, it is now important to look at all of the various retirement savings and investing options available. This list can be different for many people, depending on what is available through your employer and what your personal life situation could be. The most common type of retirement account is an employer sponsored defined contribution plan, like a 401(k), 457, or 403(b). These plans are offered through your employer and allow investors to save into these accounts pre-tax, thus reducing their taxable income while saving for retirement. According to Spectrem Group’s most recent report, Portfolio Trends, 62 percent of wealthy investors have an employer sponsored defined contribution account. These accounts have a mean value among all investors of $514,000. Over half of wealthy investors also have contributory or rollover IRAs, as well as Roth IRAs. Millennials and Gen X are the most likely to have an employer sponsored defined contribution plan, with over 90 percent of both of those generations having that type of account, in comparison to 55 percent of Baby Boomers with a defined contribution account, and 31 percent of WWII investors with one. This distinct difference may come from the fact that WWII investors and some Baby Boomers may have had defined benefit plans, also known as pension plans. These types of retirement plans were far more common during the working years of WWII investors and Baby Boomers.

Despite older investors being less likely to have a defined contribution plan, they are more likely to have higher account balances in these accounts. The mean value of employer sponsored contribution plans among Millennials is $169K, compared to the $676K and $559K balances of Baby Boomers and WWII investors. This difference is often a result from the fact that Millennials are still in the asset accumulation portion of their working lives, whereas Baby Boomers and WWII investors are mostly retired and already spend their working lives contributing to accounts similar to these.

It is not surprising that a third of the investment allocation within retirement accounts is held in equities. What is slightly concerning is that a quarter of wealthy investor retirement accounts are invested in products or securities that the investor does not know. Even if an investor is using an advisor or has automatic asset allocation done through their employer sponsored retirement plan, they should still be aware of where those assets are allocated. Knowledge of this can help prevent the investor from being overly concentrated in one position or asset class. Investors should review with their financial professional what their asset allocation is within all accounts, not just the accounts held with an advisor.