WASHINGTON — Jafor Iqbal wonders if advisors are from Mars and retirees are from Venus.
The gap between these two groups, especially when it comes to what each thinks are the risks in retirement, is vast, Iqbal, LIMRA's associate management director of retirement research, said at the group's retirement industry conference Monday.
When asked in a survey to rank retirement risks in order of importance, Iqbal said retirees rank health care as their top priority, followed by inflation, volatility, and lastly longevity. Advisors, rank longevity as their top priority, followed by volatility, health care, and inflation.
What do these differences mean for the more than 40 million retired Americans and their advisors?
For one, it means there is a significant lack of communication and understanding about what clients want and how advisors can help. This gap may lead pre-retirees and retirees to make poor decisions regarding their futures.
Here’s an example: Iqbal said only one in six retirees were able to work in retirement, yet 58% plan to do so. “Advisors need to warn their clients that they can’t depend on working in retirement because their age, health and skill set may prevent them from doing so,” he said.
According to a study by LIMRA, most advisors don’t always counsel their clients about some critical risks that could impact their financial security in retirement. The report surveyed retirees aged 55 to 80, with $200,000 in investible assets who have been retired for one to 10 years.
Marie Rice, a corporate vice president and director of LIMRA Retirement Research, said in an interview at the conference that although most advisors are careful about managing their clients’ assets in retirement, they are not addressing some key issues they may be putting a client’s long-term financial well-being in danger.
“Basic retirement planning should include things like: when a client should retire, planning expenses and income in retirement, ordering assets from which withdrawals should be made, and planning any minimum distributions,” Rice said.
Yet, the research revealed that fewer than four in 10 retirees have some sort of plan that lowered the risk that their money would run out during retirement and nearly 25% had more than $100,000 in debt, according to LIMRA.
Respondents said most advisors are not actually helping with the details of retirement income. For retirees using advisors, 45% said their advisor didn’t talk to them about minimizing exposure to retirement risk, 42% said their advisor didn’t talk about which assets should be drawn for income, 41% said their advisor didn’t talk about minimizing the amount of taxes paid in retirement, 29% said they didn’t talk about determining which assets should be used first, 27% didn’t talk about planning for expenses and income retirement, and 13% didn’t advise on when to retire.
But a separate online study of 922 advisors that LIMRA conducted in September and October found that 90% of advisors say that they are actively involved in retirement planning; 77% say they are managing assets; 73% say that they do expense planning; 66% say they advise when to claim Social Security, and 62% advise when to claim pension plans.
So, what is the disconnect between advisors and their clients?
One of the reasons, Rice said, is that when clients’ look at their statements they see a large lump of money. They are not dividing the big pot to see how much monthly income they will actually have in retirement. This is a place where advisors can help.
“Logic doesn’t always work with retirees,” Rice said. “Emotions get involved. Retirees and pre-retirees need to be shown how much monthly income they will have, not large buckets of money.
LIMRA found that advisors most likely to have these conversations with clients are: Registered investment advisors and registered representatives of broker dealers. The least likely: Financial planners and investment consultants.
So, what can advisors who want to help their clients do?
LIMRA identified five questions pre-retirees and retirees should ask advisors when developing a retirement plan: When do you want to retire? How do you expect to plan for your expenses and income? Which funds does it make sense to draw from first? Do you know that annuities have minimum distributions you need to perform and that if you don’t perform them there are penalties? What are the retirement risks you worry about and which ones should you be worrying about?
By answering these questions, Rice said, retirees and advisors should be inspired “to develop a plan that will enable the retirees to live comfortably for the rest of their lives.”
