Understanding Retirees’ Money Mindset

April 15th, 2015, Comments Off on Understanding Retirees’ Money Mindset.

Here is some information that may help you understand the money mindset of retirees—something that will come in handy during Retirement Planning Week, which is currently under way. New LIMRA Secure Retirement Institute research finds that pre-retirees and retirees fall into three categories based on their emotional attitude toward savings.

The Institute asked 2,000 pre-retirees and retirees (ages 50 -75 with at least $100,000 in household assets) what income product features they deemed the most important. Using cluster analysis based on their responses, the Institute was able to identify three distinct money mindsets:

  • Guarantee Seekers. Want to know that their income won’t disappear. Have a floor of lifetime guaranteed income and would be interested in converting even more of their savings to a pension-like contractual guarantee. Want to spend money without the day-to-day worry of how long it has to last. Want the peace of mind of a certain outcome.
  • Estate Planners. Financially savvy. Understand that equity markets generally outperform risk-free fixed investments. Can withstand a little volatility to maximize the potential of investments. Trust their own investment decisions. Want to maintain personal control over investment decisions and to retain the flexibility to adjust income and spending as needs change over time.
  • Asset Protectors. Have been saving money for a long time. Do not want to see savings account balances go down. Will live off the interest and dividends of savings, but uncomfortable invading the principal. Don’t want to be poorer.

The study found that people in each of these categories can look very similar on paper. They often share the same demographic profile, wealth level and lifestyle ambitions. But because their attitudes toward money are so different, the Institute found a distinct divergence in the income solutions they prefer:

“Guarantee Seekers” will want certainty and peace of mind and are not seeking maximum income potential, but rather a stable and predictable monthly income. This segment has the highest rate of ownership for deferred and immediate annuities (46 percent collectively) and are the least likely to own individual stocks, mutual funds, and corporate/municipal bonds.

“Estate Planners” will not be interested in converting savings to a guaranteed income stream. Investment growth and control are important to this segment. They have the highest ownership rate of individual stocks (69 percent), mutual funds (75 percent) and ETFs (19 percent).

“Asset Protectors” are reluctant to take risk and want guaranteed fixed rates of return without putting their principal at risk. This segment worries about running out of money in retirement and wants to hedge against unexpected future expense. Asset Protectors have the highest rate of ownership of CDs (44 percent) and are almost the most likely to own other conservative assets like annuities (31 percent), government bonds/Treasury notes (30 percent).

“The most effective retirement income strategy is actually a subjective assessment as much as it is an objective one,” said Judith Zaiken, corporate vice president and director, LIMRA Secure Retirement Institute research. “A subjective assessment, combined with a thorough look at the numbers, can help an advisor develop a more effective retirement-income strategy.”
What’s your Money Mindset? Take the Quiz here.

Retirees to Pre-Retirees: Add Years to the Front End of Your Retirement While You Can

April 13th, 2015, Comments Off on Retirees to Pre-Retirees: Add Years to the Front End of Your Retirement While You Can.

During Retirement Planning Week, you might want to share a survey sponsored by New York Life. According to the survey, retirees report a desire to have started retirement earlier. This was based on a survey of 62-70 year old retirees revealing that 46 percent wished they had started their retirement sooner. The survey found that the average “sweet spot” of earlier retirement was four years sooner than respondents had actually retired.

The survey asked retirees age 62-70 with $100,000 of investable assets to report on their wish to retire earlier if they could ensure the same level of financial security they had when they actually retired. The survey was sponsored by New York Life.

“Much of the dialogue around retirement has been focused on people enjoying longer lives and ensuring they don’t run out of money. What the survey shows is that retirees, if given the opportunity, would want four or five years at the front end of their retirement, when they are healthiest, most active and able to get the most out of their retirement savings,” said David Cruz, senior managing director, New York Life.

In addition, the survey revealed:

  • 51 percent of retirees who were 60 or older when they retired reported they would have preferred an earlier retirement.
  • Both men and women reported similar feelings about retiring earlier; 47 percent of men would have retired sooner, and 46 percent of women would do the same.
  • Similarly, men and women wish for nearly the same amount of time for their earlier retirement– men wanting to have retired 4.53 years sooner, and women reporting 3.96.
  • Three quarters (74%) of those who would have retired earlier if they could have the same level of financial security report that they would be interested in hearing more about financial products that could have helped make this possible.

“During this week designated National Retirement Planning Week, we hope the perspective retirees offer helps future generations plan toward a retirement as early as they wish,” added Cruz.

The survey was conducted by Ipsos Public Affairs in 2014. A national sample of 750 retired adults aged 62 – 70 with at least $100,000 in investable assets from Ipsos’ U.S. online panel was interviewed online, with an estimated margin of error of +/- 3.6 percentage points.