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Advisors Neglect Retirement Income Planning, Study Reveals

By Garrett Keyes April 19, 2018

Financial advisors have neglected meeting with their clients to formally write retirement income plans outlining how they will continue generating income after retirement. As a result, many clients have been left with no firm idea of where income will come from when paychecks cease, according to new research.

The recent study from the LIMRA LOMA Secure Retirement Institute reveals just 10% of pre-retirees have written formal retirement income plans with their advisors. Also revealing is that less than 50% of clients have an informal plan and 40% have no retirement income plan at all.

Pre-retiree confidence shows only half of pre-retiree households feel even “somewhat prepared” for retirement, registering scores within the range of four to seven in the study, with 10 symbolizing "feeling very prepared." Just three in 10 feel they are "very prepared."

“Retirement may be near for many pre-retirees, but the majority of them do not feel very confident,” the authors write.

Confronted with such statistics, financial advisors think such low rates of retirement income planning may be linked to how difficult successful plan creation is becoming.

Part of the difficulty advisors face when creating plans for their clients stems from making provisions for rising life expectancies, Michael Silver of Baron Silver Stevens Financial Advisors says.

Over the past 20 years the average life expectancy has increased to 79 years from 76, World Bank data shows.

But from his experience Silver seems to indicate many clients may now be living much longer lives – with some reaching 100. The increase in client life span creates a situation where people on average have “more time in the spending phase than the saving and accumulation phase,” he says.

Increased lifespans – which add more years of needed retirement funding – require more planning and longer outlooks as clients think their money must last “forever” without knowing “how long forever is going to be.”

Market conditions are also a factor. Decreases in interest rates over the past decade – compared to conditions prior to the global financial crisis of 2008 – and stock market returns for the past 17 years, are also factors, says John Burke, financial advisor of Burke Financial Strategies.

Looking at interest rates of 5.17% pre-financial crisis, Burke says clients “didn’t need as much money” to fund their retirement in comparison to the amount needed with the current rates below 3%.

Since interest rates have significantly decreased from the rates seen a decade ago, advisors have a more difficult time generating income on investments that were previously strong performers.

Chris Messick, partner of Messick, Peacock & Associates, says advisors may avoid creating retirement income plans because plans are “very customizable, expensive, and time intensive.”

The LIMRA LOMA study reveals successful creation of a retirement income plan requires advisors conduct two to eight hours of analysis, placing a hefty opportunity cost on the process.

Yet the additional input of advisor resources proves worthwhile because the client’s feelings of preparedness significantly increase after a successful retirement income plan is created, data shows.

Some 80% of households with a formal written retirement income plan feel well-prepared to enter retirement, the LIMRA LOMA study says, yet just 50% of households without a retirement income plan feel well prepared.

Despite challenges in plan creation, numerous advisors all assert the importance of advisors creating formal written retirement income plans.

Advisors who are not creating retirement income plans are “not doing their job” and are taking “shots in the dark” with their clients' future retirements, Silver and Messick say, respectively.