Seventy-seven percent of Americans are at least “somewhat confident” that they will be able to maintain the lifestyle they want throughout retirement, according to a new poll conducted by Gallup. That includes 34 percent of respondents who are “highly confident” that they will have enough money to maintain their preferred standard of living in old age, a marked increase from 25 percent in 2014. However, there is a chance of overconfidence because a recent Bankrate survey found that 21 percent of U.S. adults are setting 5 percent or less of their annual income aside for retirement, and 19 percent are not doing any saving whatsoever. To be fair, 73 percent of working Americans were found to be setting aside at least something for retirement, but around two-thirds are still failing to save the more than 10 percent of their income that is typically recommended to be allocated to a tax-advantaged 401(k) plan.
Similarly, a study by Fidelity Investments estimated that the typical U.S. household is on track to have 80 percent of the income they will need to cover retirement costs. Although not horrible, that is only a “fair” job or retirement preparedness, according to the report, and therefore means that “modest adjustments to planned lifestyle” will likely still need to be made. One thing that may help people avoid a less-than-ideal standard of living in old age is working with a professional financial advisor. Indeed, the households in the Fidelity study that regularly consult with an advisor were found to have significantly higher retirement readiness scores, even after controlling for income differences. Although the researchers could not prove a direct causal relationship between working with an advisor and the level of old-age financial preparedness, they did suggest that households that use an advisor may simply be better planners. Advisor users, for instance, were found to have a much higher likelihood of incorporating the cost of healthcare into their retirement plan and saving for it.
Encouragingly, there is evidence that many people are willing to work with advisers. For example, respondents in a BMO survey expressed a desire to receive professional financial guidance in the areas of investment management (52 percent), cash flow management and budgeting (27 percent), debt management (26 percent), estate planning (24 percent), health and long-term care needs assessment (21 percent), and insurance needs assessment (17 percent). Similarly, a Cerulli Associates report found that among a diverse group of surveyed retail investors, half said that they are willing to pay for professional advice. That jumps to 79 percent for respondents ages of 30 to 39, and 73 percent for investors under the age of 30. Such sentiment is encouraging because it means that Millennials are learning early in life just how valuable it can be to consult with a professional when it comes to ensuring long-term financial well-being.
Sources: Gallup, Bankrate, Fidelity, BMO, Cerulli Associates, ThinkAdvisorPost author: Charles Couch