This article is the first in a series focusing on funding life in retirement.
Retirement remains the number one priority of investors worldwide.1 Investors understand the important role that saving and investing play in their effort to achieve a comfortable post-career lifestyle. However, there is evidence that investors face challenges when it comes to putting this understanding into practice. In today’s new retirement landscape – one in which the responsibility for funding retirement is shifting from governments and businesses to individuals – there is an opportunity for financial advisors to provide added value to clients by the helping them to refine their long-term financial goals and clarify their retirement planning strategy.
Retirement Readiness: Perception vs. Reality
According to survey data, investors worldwide believe they will need 61% of their current income in retirement – an estimate well below the 75-80% figure that is traditionally assumed for retirement plans. In addition, more than half of the investors we surveyed (51%) report that they have no financial plan and half (50%) report that they do not have financial goals. All the while, return expectations are increasing. The average investor expects returns of 10.1% above inflation in order to retire comfortably. This figure is 3.2% higher than what advisors suggest clients achieve above inflation to meet the threshold of financial security.2 Two-thirds of investors report that they are not concerned about the effects of taxes on their investments, indicating a lack of awareness of how allocation can affect tax liabilities.
In their effort to achieve success in retirement, it is likely that investors could benefit from aligning their existing goals and beliefs more closely with the realities of the new retirement landscape.
Connecting the divide
Everyone can envision what a successful retirement means to them. Insufficient financial planning and unrealistic funding goals can prevent clients from making this vision a reality. For advisors and their clients, any plan that aims to successfully fund life in retirement should include five basic principles:
- Determination of spending requirements – How much money will the client need?
- The matching of funding with expenses – Will the planned disbursement of the client’s funds be enough meet those ongoing needs?
- Planning for a new set of risks – Have unique retirement funding risks – such as inflation, longevity, and market risk – been taken into account?
- Tax impact minimization – Have all avenues for optimizing tax efficiency been considered?
- Staying engaged and flexible – Are the client and their advisor ready to make any changes to the retirement funding plan along the way?
Funding life in retirement remains one of the most widely-held and highly-valued goals of investors worldwide. Clients recognize the importance of retirement, but could benefit from clarification and guidance around the retirement planning process. Advisors have a potential value-add opportunity in making themselves available to provide that clarity as they accompany clients along their retirement journey.
Watch Ed Farrington, Executive Vice President of Retirement, discuss the challenges advisors and their clients face as they work to achieve retirement security.
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1 Natixis Global Asset Management, Global Survey of Individual Investors conducted by CoreData Research, February 2015. Survey included 7,000 investors from 17 countries
2 Natixis Global Asset Management, Global Survey of Financial Advisors conducted by CoreData Research, June and July 2015. Survey included 2,400 advisors from 14 countries
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.
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