Successful Retirees Share Lessons Learned
We all have a vision of what retirement looks like. Boomers and the generations who follow have openly declared their determination to reshape that vision to include meaningful volunteerism, advanced education, entrepreneurial endeavors and a relentless pursuit of physical and mental fitness, among other “non-traditional” retirement goals.
Today’s most effective advisors are actively engaged in conversations about their clients’ unique retirement vision and are focused on working with them to activate and monitor a retirement savings plan to help fund their vision. Many of today’s savers, and their advisors, could easily be distracted by the challenges of an ailing economy, market volatility and the impact international financial turmoil continues to have on our own domestic financial environment. But what if today’s savers could benefit from the wisdom of the people who confronted these obstacles and went on to retire? The simple answer is that thanks to recent research, they can.
Over the past year, representatives of Lincoln Financial worked with a financial services research firm to identify actions that can help today’s savers become better prepared for retirement. What we found is enlightening and not as complex as you might think. While not all of these actions may alter your clients’ retirement plans overnight, they can certainly serve to motivate clients to take proactive steps toward achieving a better outcome.
Establishing a Baseline
In order to promote savings and behavior change among future retirees, savers need a simple way to measure and track their retirement readiness at every stage of life. A baseline can be used to monitor retirement savings progress, whether people are just starting to save in their twenties or are approaching retirement in their fifties and sixties.
The study1 of more than 4,000 people across different age groups, including about 1,200 retirees, uncovered that individuals should aim to hit a savings benchmark of at least 10 times (10X) their income at a typical retirement age. And while your clients can’t know what their annual salary will be at the time they retire, they can multiple their current annual income by 10 to see an initial 10X baseline. This assets-to-income ratio is an evolving target that adjusts as income changes throughout a lifetime. It also allows clients to improve their numbers incrementally as they save, and measure how they’re doing relative to their peers and their overall savings goals.
While the 10X score can help clients gain perspective on the need for retirement planning, it’s important to note that this is a baseline number and should only be used as a conversation starter. Once identified, clients should discuss their 10X score with you to determine whether this number fits their savings needs or should be adjusted according to their individual circumstances.
Retirement Actions Leading to Better Outcomes
The study identified four key behaviors among people who considered themselves the most successful in retirement. These common, straightforward actions that retirees steadfastly employed while saving can serve as a key to retirement success. These retirees consciously maintained focus and stayed on track, even if they had to modify their savings plan slightly or temporarily, no matter what.
1. Talk with a financial professional. More than half of the retirees in the study reported using financial professionals as the primary source of information and advice regarding their investments. As a financial professional, you are instrumental in shaping clients’ financial plans and are uniquely positioned to offer insight and guidance on changing market conditions in the retirement landscape. Yet not many people realize this value, and for a variety of reasons do not think to consult with a financial professional about their retirement savings plan, even when they are in clear need of guidance.
As witnessed over the past few years, saving without guidance can easily fuel anxiety and uncertainty about the future. Financial professionals who educate and motivate in a positive and supportive way are more likely to precipitate a positive outcome for their clients.
Retirement means different things to everyone, thus unique retirement goals should be set by each individual, accounting for where they are in their life. More often than not, if a person is motivated to meet with a financial professional, they’ll take the next steps in planning to save for retirement. Encouraging potential clients to schedule an initial meeting or consultation is the first step in the right direction. The value advisors provide will then speak for itself.
2. Enroll in retirement accounts at work or in an IRA. Compared to other retirees, those who deemed themselves successful in retirement were more likely to use retirement accounts to help themselves achieve their savings goals. And for many working Americans, the only way they have to save for retirement is through an employer-sponsored retirement plan like a 401(k). By simply enrolling in an employer-sponsored plan or IRA, savers are taking advantage of the benefits these plans offer, including company matches and pre-tax savings on contributions.
Although retirement may seem far off for some, it’s important to encourage clients to stay on track and continue saving to ensure they don’t outlive their income and can maintain the lifestyle they desire in their retirement years.
3. Save steadily and “power save” when possible. Time in the market is more important than timing the market. This is one recommendation that has been strongly validated by retirees. By steadily saving income over time, future retirees are developing sound investing habits and their savings accounts will also have significant gains over time.
And while steadily saving a modest amount each year is important, it is not enough by itself. Retirees in this study had the foresight to realize this and set more aside in “power-saving” years—defined as age decades during which they saved extra amounts. This could have been a year when they invested a company bonus, received an inheritance, yielded a profit from selling a business or real estate, or experienced other windfalls that led to an increase in investable income.
Power-saving early on—particularly between ages 30 and 40—has the greatest long term benefits. Combined with steadily saving a modest, achievable amount each year, “power-saving” whenever possible will help individuals reach their retirement savings goals.
4. Have an investment strategy. The retirees studied reported a significantly higher use of investment strategies compared to other retirees. These may have included one or more of the following: picking mutual funds or stocks that performed well, managing asset allocation, and riding the market or indexing. Strategies don’t have to be complex; simply having one seemed to make the difference.
It is clear that having an understanding of where money is invested and making appropriate investing decisions are critical components of a comprehensive retirement plan. Advisors can help their clients formulate investment strategies that they are comfortable with. There is a strategy for everyone, from novice investors to even the most savvy. And financial professionals who help their clients develop a strategy that is right for their investing style will certainly set themselves apart.
A Positive Future for Retirement Planning
Based on what was found in this study, there is a clear opportunity to reshape thinking when it comes to retirement planning in this country. Future retirees no longer need to brace themselves for the worst possible outcome by adopting a defensive and pessimistic outlook on saving for retirement.
Armed with the knowledge and simple behaviors employed by retirees who deemed themselves as successful, future retirees can now embrace a more proactive and positive approach to planning for their own unique vision of their future. With ongoing education and guidance, financial professionals are in a better position than ever before to help people achieve the outcome they desire and deserve.
1. The Lincoln Financial Life Stages: Retirement Power Study was conducted by the research firm Hearts & Wallets, LLC, and licensed by Lincoln Financial Group. The findings are exclusive to Lincoln and are based on the analysis of a licensed data set from Hearts & Wallets’ 2010 Investor Quantitative Panel, an online survey of 4,041 respondents representing a cross-section of U.S. households. The survey was concluded in April 2011.
is president of the defined contribution business for Lincoln Financial Group. An avid proponent of optimism in retirement planning, Cornelio encourages advisors, plan sponsors and plan participants to take a more positive outlook on saving for retirement.