We don’t like change, even if its change we’ve looked forward to for years. A new study from the recently formed Vanguard Center for Investor Research examines the transition from work to retirement for workers in four countries (the United States, Canada, the United Kingdom, and Australia) to find out why.
It reports that recent retirees are more satisfied and confident with their financial decisions than pre-retirees, who reported feeling more anxious or uncertain. The authors attributed these differences in sentiments “to the psychological ambiguity that often accompanies the pending transition to retirement.”
And even though the level of retirement planning varies by country, the authors write, individuals devote most of their effort “to the timing of claiming government pensions, as well as it has transitional issues like when to retire or the amount of monthly income needed. A smaller percentage has a formal plan for generating retirement income or has considered more holistic financial planning issues like taxes, health insurance, or estate matters.”
While planning well in advance of retirement could help alleviate some uncertainty, the authors also found that one-third of pre- and recent retirees have or will be transitioning to retirement with no formal guidance or structured advice.
This potential “advice gap” creates an opportunity for more broadly-available low-cost advice options to help guide investors into retirement.
“We found that this advice gap is particularly significant in income planning—specifically how individuals will translate their growing pools of savings into a regular income stream,” said Stephen Utkus, principal and head of the Vanguard Center for Investor Research. “This points to a need for additional drawdown tools and guidance.”
Of those respondents who have done some planning, only about one-quarter felt they had full competence to determine the best method for drawing down from their DC plan, and less than one-third admitted to knowing how to best manage their investments.
The research paper, Retirement transitions in four countries, explores the sentiments and challenges faced by both pre-retirees and recent retirees, and identifies potential solutions to better support this significant lifestyle and financial change. Results by country were fairly consistent.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
