Near-retirees and retirees are very uncertain about their future, and many are afraid they will live in poverty, a survey of more than 300 Baby Boomers by Financial Engines found.
More than half said they are unsure what the future will bring. Nearly half are afraid they will live in poverty in retirement. Nearly half are distrustful of the motivations or qualifications of financial services and insurance companies, and more than a third of near-retirees said they did not feel confident or knowledgeable when it comes to making important financial decisions.
“With the first Baby Boomers entering retirement in 2011, the retirement income of an entire generation of American workers will be heavily dependent on 401(k) plans—plans that did not even exist when many Baby Boomers started their careers,” said David Ramirez, portfolio manager with Financial Engines, responsible for overseeing the management of 401(k) portfolios in Financial Engines’ retirement income service.
“We conducted this analysis to better understand this generation of accidental investors, who now find themselves in the unexpected position of managing their own retirement assets and creating a retirement spending strategy,” Ramirez said.
Perhaps the most significant finding of Financial Engines’ research is the fact that many Baby Boomers feel paralyzed with fear—and the best way for investment management firms and plan sponsors to reach them is to build trust so that they will seek professional help.
Many participants who expressed uncertainty about their future, distrust of financial services or who said they are not confident making financial decisions said they are avoiding thinking about planning for retirement altogether. And those who said they were afraid of living in poverty engaged in what Financial Engines calls “magical thinking”—hoping that even if they don’t do anything to plan for their retirement it will all work out in the end.
And those who said they were distrustful of financial services or not confident about making financial decisions most commonly turned to friends for advice, regardless of their qualifications or experience.
Thus, Financial Engines cited the five greatest needs of retirees and near-retirees that investment management firms should focus on in order to gain their business:
Flexible Options. Participants said they want to have flexibility and control over their retirement investments, particularly since they might face large medical bills or other healthcare issues. The participants said they do not want to be locked into an investment vehicle such as an annuity.
Safety. Given their experience with the dot-com crash of 2001-2003 and the financial crisis of 2008-2009, many participants have been hit with significant losses right before or in retirement. Thus, many participants want investments that lower investment risk or provide a steady and reliable source of income—or both.
Help From a Trustworthy Adviser. While many participants said they would like to work with a financial professional they could trust to help them create a retirement income plan, they said finding an adviser and an investment firm that they could trust with their life savings is a quandary.
Sponsor Evaluation. Many participants said that they felt somewhat confident in their employers’ selection of retirement income providers for their 401(k) or other defined contribution plan.
Fee Transparency. An overwhelming number of participants said they want clear and easily understood fees.
“This analysis shows how emotions can create barriers to accessing professional retirement help and highlights the need for improved understanding of participant emotions,” said Shin Inoue, director of retiree services at Financial Engines. “Meeting the retirement income needs of this generation starts with the development of solutions that address their emotions. Only then will we be able to help accidental investors achieve the retirement security they seek and deserve.”