Column: Fewer than half of pre-retirees have written plans



If the adage about failing to plan holds true, most Americans are planning to fail retirement.

Even among those who have financial advisers, fewer than 40 percent say they have formal, written retirement plans, according to a survey by the LIMRA Secure Retirement Institute, an educational arm of the annuity industry. Just 35 percent of retirees and 38 percent of pre-retirees who have advisers also have formal retirement plans, the group found.

And among those who have financial advisers but not formal written retirement plans, just 28 percent say they are very confident they are saving enough and just 25 percent are very confident they’ll be able to live a desirable lifestyle in retirement.

Further, many haven’t completed all the components of a comprehensive plan, Jafor Iqbal, assistant vice president for the institute, said in a conference call to present the survey findings. While 60 percent of pre-retirees have determined their future Social Security benefits, just 41 percent have projected their retirement expenses and 42 percent have calculated how much money they’ll have to spend. A mere 27 percent have developed a specific plan for generating income from retirement savings.

But all that leads to a more basic question: What exactly should a written retirement plan include?

A net worth statement, current savings rates and projections for how much income those savings will generate in retirement, to be sure, but what else?

Savers might want to consider including an investment policy statement that declares their risk tolerance and basic model portfolio allocation among stocks and bonds, their basic tax strategy for withdrawals and a general statement of how they will withdraw assets from their portfolio for income when the time comes.

“Goal-based plans drive the best outcomes,” said Joe Ready, head of Wells Fargo Institutional Retirement and Trust, which administers workplace retirement plans and which has published similar studies showing the benefits of written financial plans. While many current 401k plans allow participants to create documents showing these projections, he said, new data mining techniques are allowing plans to evaluate a participant’s account and suggest ways to improve, such as boosting contribution rates to take advantage of an employer’s full savings match.

“For the most part we’ve turned the corner from those old 50-page reports” that showed typically optimistic projections of savings growth over many decades, said Eric Dostal, a financial planner in New York with Sontag Advisory LLC. Clients understand that the longer their time horizon is until retirement, the more unlikely it is that inputs to a written plan will stay relevant, he said.

Still, running projections that take into account current savings and savings rates, along with market performance, can be an exercise that focuses clients’ attention and improves their outcomes, Mr. Dostal said. So he walks clients through questions about savings rates while they are in his office, rather than presenting the report as a completed exercise.

“The thing that strikes me the most is many people haven’t taken the time to think about where they are going,” he said. “They haven’t taken a couple of hours to sit down and think about what they want the rest of their life to look like. I’ve asked people what they want to do with their lives and gotten blank stares.”

Plans should also include illustrations that incorporate all retirement income sources, not just retirement accounts, experts say. The plans should factor in Social Security benefits, taxes generated from withdrawal strategies and inflation as well, advisers said.

“It doesn’t have to be elaborate, but having a written plan for where you want to be makes a big difference in confidence,” Mr. Ready said.

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Janet Kidd Stewart writes The Journey for Tribune Content Agency. Share your journey to or through retirement or pose a question at journey@janetkiddstewart.com.

 





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