Survey: It’s off to work we go

As advisers struggle to find investment strategies that will allow clients to preserve their retirement portfolios, many clients are now coming up with their solution: It’s called working.

A growing number of individuals said that they are now postponing their plans for retirement and, in some extreme cases, suggested they may never retire at all, according to an InvestmentNews survey.

Roughly 52% of the 592 individual investors canvassed by InvestmentNews noted that they will not consider retiring until at least age 66. Last year, by comparison, nearly two-thirds of the individual investors polled planned to retire before they hit 65.

The InvestmentNews survey was conducted online between Jan. 30 and March 6.

Asked whether the financial crisis would force them to delay their retirement, half (50.6%) of 591 investors said yes. At the same time, the number of investors who don’t think they will ever retire more than doubled, with 8.3% of individuals stating that they had no plans to stop working, compared with only 3.8% a year earlier.

But that’s what happens when a stunning economic collapse cuts investors’ portfolios in half in just a single year.

Many people can no longer afford to stop working. Others, perhaps, fear that the markets have not yet hit bottom. And a number of individuals are pushing back their retirement plans with hopes of recovering at least some of the massive losses that they suffered in 2008.

“There’s a fear factor about retirement now that didn’t exist just a year ago,” said Sandra Timmerman, director of the Metlife Mature Market Institute, a New York-based retiree research organization. “The psychology has changed completely over a very short period of time.”

Whereas retirement was, at some point, a dream for most working individuals, it’s now perceived by many to be a substantial risk, Ms. Timmerman added. “Even if you could afford to stop working, why would you?” she asked, summing up the sentiment that many pre-retirees have expressed in recent months.

This will present some significant challenges for advisers over the next few years, experts noted. For one, many older clients have pulled out of equities in favor of cash vehicles and other safe — but low-yielding — landing spots.

While this might help investors preserve what’s left of their assets right now, it could mean they’ll derive substantially less income from their investments during their retirement years.

“When clients react emotionally, they usually make the wrong decisions,” said Brian O’Toole, chief executive of Genworth Financial Wealth Management Inc. in Pleasant Hill, Calif. “You have to have patience, and make sure that you don’t do anything in the short term that can severely limit you over the long run.”

To this end, most of the investors polled by InvestmentNews already appear to be bracing for life with significantly less income during their eventual retirements.

About 40% of respondents said that their income during retirement will be anywhere from 50% to 70% of their current income, and 30% anticipated their income will be 75% to 80% of their pay.

By contrast, about 34% of respondents said last year that their retirement income would be 75% to 80% of their working wages, while only about 32% anticipated that their retirement income would be 50% to 75% of their current income.

Almost half of investors polled also said that they still anticipate spending 5% to 9% of their nest egg during each year of retirement.

Without a carefully crafted retirement income plan, there is a real threat that many individuals could outlive their savings, experts noted.

It isn’t simply the equity market meltdown that has so many thinking pessimistically and pushing back their plans for retirement, however. “There are a number of other new realities concerning clients,” said Gene Harrison, vice president and director of financial planning at D.A. Davidson & Co., a regional brokerage firm in Great Falls, Mont.

Chief among these concerns is the likelihood of paying higher taxes over the next several years, at the same time that both health care costs and inflation are projected to rise, he said. Mr. Harrison pointed out that stock market returns are expected to be modest for quite some time.

GOING ON A DIET

Maximizing clients’ investment returns will, of course, be a top priority (see story on Page 10 for more) but advisers will also need to be more focused on helping clients trim their expenses during their retirement years, as well.

If clients are expecting their retirement income to be 25% to 50% lower than their current take-home pay, “then they’ll have to find ways to reduce their expenses by 25% to 50%, too,” Mr. Harrison said.

That is a pretty daunting task that explains why more people are opting to keep working and putting off their plans for retirement indefinitely.

“These are incredibly unsettling and uncertain times,” said David Wray, president of the Chicago-based Profit Sharing/401(k) Council of America.

This could explain why a number of individuals who do their own finances and retirement planning may be looking to hire a financial adviser in the near future. About 40% of the more than 500 individuals polled said that they manage their own money.

Of this group, however, 31% said that they would consider hiring an adviser, and 42% said they may consider it.

Of those surveyed, almost 60% were older than 50, 26.3% were between 41 and 50 and 24% were under 41.

About 56% of investors who use a financial planner, investment adviser or securities broker were satisfied with them.

E-mail Mark Bruno at [email protected].