A recent study of 1,103 investors found that more than half (53%) had not developed a financial plan to fund their retirement in the last 5 years, and more broadly, found an alarming lack of knowledge among some investors related to their retirement savings.
DALBAR, Inc., a leading researcher in investor behavior, conducted the study to gain insight into their retirement planning (or lack thereof).
Not surprisingly, most of those investors without a plan were do-it-yourselfers. The study found that 75% of investors with a financial advisor had developed a plan to fund their retirement in the last 5 years while less than a third (30%) of those without an advisor have developed a plan.
The study found that a surprisingly significant portion of investors do not know the answers to what DALBAR calls the 3 Fundamental Questions of Retirement Planning. Those are (1) how much do I currently have saved for retirement? (2) how much will I need at retirement? and (3) what are my chances of having what I need?
Not knowing the answers to these questions led to lower satisfaction in one’s overall retirement savings picture.
The study found that 14% of investors don’t know what they currently have saved for retirement. Those working with a professional are less likely to have such a blind spot (only 7% do not know what they currently have saved) than those who do not work with an advisor (17% do not know).
More than seven out of 10 individuals with a financial advisor have an estimate of what they’ll need for retirement while only 4.5 out of 10 DIY investors have identified a retirement savings goal, underscoring how uncommon it is for people to estimate their retirement savings goal on their own.
Twenty-two percent (22%) of investors do not have an estimate of what they will have saved at retirement. For these investors, they have not projected where they will be at retirement and therefore have little basis to determine whether they are on track or what changes to make.
Less than 10% of investors with a financial professional do not have an estimate of what they will have saved at retirement while 30% of do-it-yourself investors lack such an estimate.
DALBAR’s Retirement Planning Study comes as the industry awaits guidance from the Department of Labor regarding the lifetime income disclosure requirements that were brought forth by the SECURE Act in 2019.
“An important takeaway from this study is that investors need to know more than just what they have saved or will have saved at retirement. Investors also need to understand what their goal should be to lead a dignified retirement. This is a question that many Americans are struggling to answer and one that I hope is addressed in the upcoming DOL guidance,” said Cory Clark, Chief Marketing Officer at DALBAR, Inc.
“The retirement readiness of American workers is an important social issue. Talking about financial literacy, the importance of planning for retirement, and giving it the seriousness it deserves, will help to elevate this important issue into the consciousness of the American people. October is National Retirement Security Month, so it’s a great time for the industry to speak loudly about the importance of having a plan and prioritizing retirement savings,” Clark added.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
