Seniors Fear Spending Retirement Income


BOSTON (TheStreet) -- Employer-sponsored plans are increasingly treated as "God-forbid" income sources, "to be tapped only as an absolute last resort under the most dire of circumstances."

That's among the conclusions drawn from national focus groups convened by Hearts & Wallets, a retirement and savings research firm based in Massachusetts and New Hampshire. The focus groups -- held in New Jersey, Dallas and San Francisco -- focused on investors having a minimum of $500,000 in investment assets and included preretirees and retirees.


"Many in the employer-sponsored plan side of the business would like to think of the 401(k) and 403(b) as the foundation from which financial security in old age will be drawn," the researchers wrote. "This may be true, but for many investors, it is a security blanket not to be touched; to tear into it would leave them vulnerable to the cold with nothing left to shield themselves. This attitude partly stems from the idea that money on which taxes have not yet been paid doesn't feel like 'my money,' and won't until 'Uncle Sam has been paid.'"

Older Americans -- at least those who took part in the study -- also view the future as "unknowable" and question financial planners who try to help control that uncertainty.

Trust also appears to have dropped to a new low for financial services institutions and advisers over the past nine months, according to the firm.

"Older investors are gun-shy on many levels," says Chris Brown, a principal of Hearts & Wallets. "Unlike market performance, a number of uncertainties can't be mitigated with asset allocation: the risk of illness and large medical bills; adult children's job security; the capriciousness of government actions, especially on taxes. Older Americans view financial services firms as suspect if they make promises to help plan for what can't be known."

Firms should "work on solutions for unknowns and unmet needs, while building trust by outlining exactly what they can do and how much it costs," he suggests.

"Education about income sources is critical for pre- and post-retirees," he says. "Very few participants in our research sessions had a clear idea of how to take income across different accounts." Brown encourages firms to develop the concept of "a portfolio of retirement income sources, which can be strengthened with a tax strategy."

"Most focus group participants responded very positively to the idea of tax strategy advice, but not all are willing to pay an additional fee for that service, although they might if it were articulated clearly," Brown says. "It's important that financial services firms understand the different needs of the life-stage groups of older Americans to tailor communications, customize products and fill the education gap. For example, there is no one ideal income replacement rate ... it is highly personal and varies widely."

The perceptions held by older investors could trickle down to the younger generation. The study asserts that "the longer these needs go unmet by the financial services industry, the more likely younger investors will stay with discount brokers even after accumulating substantial wealth."

Wrapped into all this is a deminishing level of "trust" in advisers and negative associations with the term "financial planning," the firm says.

"We were struck by how trying a new provider -- or even relying more heavily on an existing one -- is a leap of faith," the report says. "It's a lot closer to converting to a new religion than buying a new car."

"One key to winning back trust is demonstrating that the adviser understands the investor and shares the same values," Hearts & Wallets co-principal Laura Varas says. "Our research continues to underline the need for clarity in pricing and a firm's value proposition."

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