Top Ten Findings from IRI’s New Research on Retirees

Much of the available research on retirement focuses on those who are still in the planning stages. But what about those in retirement, and what lessons from their experiences can help shape and improve the retirement outlook for future generations?

In our latest report, we decided to take a deeper look at those who have already been in retirement for at least a handful of years and had at least $50,000 in investable assets at retirement. We hoped to not only check up on how they were doing, but to also gain insight into what elements of their retirement plans were leading to financial security. Here’s what we learned:

#1: Traditional pensions are a key component of income for retirees. More than eight in 10 retirees in the study are receiving some income from a defined benefit pension plan, and 42 percent are receiving at least half of their retirement income from a pension.

#2: Pension replacement will be a key retirement planning issue. Only 24 percent of current private-sector workers are covered by a defined benefit plan. IRI estimates that as many as 56 million Baby Boomers will not receive retirement income from a pension, and future retirees may need upwards of $400,000 to make up for this income shortfall.

#3: Advisors need to help their clients think holistically. As Americans become more responsible for creating their own pensions, helping clients build retirement income plans must become a greater part of advisors’ businesses. Financial professionals have an historic opportunity to leverage Social Security optimization strategies and the use of lifetime income solutions to help their clients attain the same security, lifestyles, confidence and positive outlooks as the participants in this study.

#4: Retirees love guaranteed lifetime income. Nearly three in four retirees receiving income from an annuity were satisfied with their investment. This was higher than any other type of investment or retirement savings vehicle they rated in the survey.

#5: Retirees value professional financial advice. Nearly six in 10 retirees in the study have worked with a financial professional and 93 percent of them say the advice and guidance they have received has been effective.

#6: Expect the unexpected in retirement. Four in 10 retirees have experienced a major health event, such as a heart attack or stroke, and 25 percent have experienced a significant non-medical event, such as a major home repair.

#7: Long-term care misconceptions are wide-spread. Retirees underestimate the likelihood of requiring long-term care. Two-thirds of retirees believe they have less than a 25 percent chance of requiring long-term care, yet the Department of Health and Human Services estimates that 70 percent of those turning 65 today will need such services. Moreover, six in 10 retirees incorrectly believe that Medicare will pay for long-term care services.

#7: The majority of retirees are not maximizing Social Security. Six in 10 retirees filed for Social Security prior to age 65, before their full-retirement age, significantly reducing monthly benefits.

#8: Retirees are not relocating en masse. The majority of retirees are staying put. More than six in 10 retirees have not sold their home or relocated in retirement. Among the 27 percent who did, 62 percent did so for lifestyle reasons.

#9: Advisors can add value by helping clients manage distributions effectively. Of the 58 percent of retirees in the study who have taken distributions from a defined contribution plan, an IRA, or other account, the top reason was to satisfy Required Minimum Distribution (RMD) rules, as indicated by more than half of these retirees. Advisors should engage their clients on how to manage these distributions effectively.

#10: Retirement is more than a number. Retirees in the study are predominantly planning to spend their retirement years enjoying leisure activities, traveling and being with family and friends. As I’ve often said, retirement planning shouldn’t be about a number or a product, it should be about what the client aspires to achieve in retirement. Make this a part of your planning conversations with clients. They will appreciate it, and it will make them more open to committing to a savings plan to meet those goals.