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Planners make the difference in boomer retirement confidence

If your older clients are worried about saving enough for a comfortable retirement, chances are there's a good reason. If they're not worried, maybe they should be.

A new survey from the Insured Retirement Institute finds that a significant portion of baby boomers don't have enough saved for retirement, while a sizable majority underestimates how much they will need to take in each year to live comfortably.

The IRI has been publishing annual installments of its boomer retirement survey since 2011, finding, over the intervening years, more respondents saying that they plan to postpone retirement and more saying that they have already exhausted their retirement savings.

"What seems to be a constant is the large number of boomers who really lack any kind of planning for retirement," Frank O'Connor, IRI's vice president of research, said on a recent conference call. "Most have not set their retirement savings goals, but this varies based on whether they have help."

Illustrating that gap, seven in 10 survey respondents who say they work with a financial advisor say they have a retirement savings goal. Of those with no advisor, just 25% say they have set a hard goal.

That translates into greater confidence about retirement expressed by investors who work with an advisor compared with those who go it alone. Of the boomers surveyed who work with an advisor, seven of 10 describe themselves as "excited and confident" or "happy and cautiously optimistic" about retirement. Just one third of respondents without advisors expressed that sentiment.

Chart listing employees' top sources of financial stress, according to MetLife

"When we consider financial literacy and financial wellness, investors who work with advisors are more fit and engaged in planning their financial futures," says John Kennedy, senior vice president and head of retirement solutions distribution at Lincoln Financial.

Some of the numbers are stark. Forty-five percent of the boomers surveyed by the IRI say that they don't have any money put away for retirement. Of those who have retirement savings, more than half report that their nest egg is less than $250,000.

In addition to seeking out professional advice, IRI is urging savers to take advantage of their employer-sponsored plans, especially if those plans offer a matching component.

Sound retirement planning, of course, must incorporate strategies for how much money to put away and where to invest it — the IRI, representing firms that market lifetime income products, is perennially bullish on annuities — but must also factor in reasonable models of what expenses are likely to occur in retirement.

This is an area where many boomers are at sea, according to the IRI survey, which identified deep confusion and uncertainty in terms of how respondents are approaching the expenses they'll likely face in retirement.

Respondents who don't work with a financial advisor were unlikely to have put together a formal retirement plan, let alone take a crack at projecting how much they might need to budget for unforeseen health care costs.

"Most of those without advisors have not taken these steps — only about a third have even tried to calculate the amount that they need to have saved in order to retire, and far lower numbers have done things like look at what health care or long-term care expenses might mean in terms of their retirement income or retirement expense picture," O'Connor says.

"As a result, many boomers are not confident that their retirement savings are going to last throughout retirement or that they'll have enough money to pay for health care, to pay for long-term care," he adds.

But the survey also shed light on some of the misconceptions many boomers have about funding their retirement. For instance, just 30% of the survey respondents expect they will need $55,000 in annual retirement income, yet that's just what the average couple spends between the ages of 65 and 74, according to the IRI. Meanwhile, an average retired couple can expect a Social Security payout of around $28,000 a year.

Additionally, nearly half of the boomers surveyed expressed the erroneous belief that Medicare would cover long-term care expenses. But Medicare does not generally cover long-term care expenses, such as nursing home care.

Mike Hamilton, vice president of product management for Lincoln Financial's MoneyGuard insurance offering, stresses the importance of planning for long-term care well ahead of when a retiree might actually need it. But even among investors who work with advisors, too often that subject goes undiscussed.

"That conversation isn't happening as often as it should," Hamilton says. "Planning for long-term care really begins with a conversation, but there are many misconceptions about long-term care, and it's a difficult topic to discuss. We find that people just aren't talking about it with their advisor or families."

Investors can also suffer from a false confidence as they examine their retirement prospects. For those who do have savings, the anticipated payout will quite likely be more money than many savers have ever seen at one time, O'Connor observes. But he urges savers not to be dazzled by the prospects of a one-time payout.

"That might be a mini lottery winning," he says. "But we know what happens often with lottery winners — without a plan, generally they don't fare so well after just a few years."

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