Affluent May Need Savings Other Than Employer Plan

A strong majority of U.S. respondents (72%) to Legg Mason’s Global Investment Survey said their primary goal of investing was to “maintain my current lifestyle later in life,” including throughout retirement.

To do this, survey results suggest, affluent Americans on average will need to save at least $2.5 million before they retire. Asked if they were making progress on this challenging goal, almost four in 10 (38%) said they were not doing well or only doing “somewhat well.” Taking all retirement readiness factors together, Legg Mason finds just 40% of those surveyed said they were confident in their ability to “retire at the age I want to,” while 60% were either not confident or somewhat confident.

Legg Mason finds its sample has an average retirement plan savings of $385,000 and is close to age 58. Seventy percent of respondents said they had a defined contribution (DC) plan holding substantial portions of their net savings, Legg Mason says.

“Given their ambitious goals, investors hopefully have considerable savings elsewhere, such as significant equity in their home or other investment accounts, where their asset allocation is designed to help them achieve their long-term goals,” says Matthew Schiffman, global head of marketing for Legg Mason. “Otherwise, reaching their $2.5 million goal could be extremely challenging.”

Legg Mason restricted the U.S. portion of the Global Investment Survey to more affluent investors with a minimum of $200,000 in investable assets, not including their homes. Most of these individuals identify retirement preparation as a top reason they are saving.

The survey finds that the top issues investors fear could prevent them from living the lifestyle they want to later in life are: having a catastrophic event that uses up retirement funds; living longer than retirement assets last; and income unable to keep up with inflation.

Given investors’ ambitious financial goals, Legg Mason says, it is encouraging that 72% of them “are happy to sacrifice now to have enough money later in life.” Other key findings show:

• 42% expect to cut back on their lifestyle in retirement so they do not outlive their assets;
• 31% think they will need more money in retirement but are afraid to take the investment risk to get there;
• 30% can save more, they just do not; and
• 26% have more debt than they should.

Legg Mason says investors are showing a jump in self-confidence regarding their abilities as investors. According to the survey, more investors said they were “very confident” in their ability to achieve overall financial goals (up 8%), to manage investments (up 8%), to read the markets effectively (up 9%) and to understand complex financial instruments (up 4%). 

“Having income-producing investments” is a priority for more than 80% of investors, with most investing in equity income funds, investment-grade bonds and high-yield bonds to meet their income needs.

“Despite low levels of inflation, the challenges of generating income in an uncertain rate environment are weighing on investors,” Schiffman says. “To help alleviate this concern, we recommend that investors look beyond traditional fixed-income and equity asset classes to enhance the diversification and resilience of their income-producing assets.”

The U.S. portion of the Legg Mason Global Investment Survey was conducted among 458 affluent investors with a minimum of $200,000 in investable assets not including their home. The online survey was conducted by Northstar Research Partners from November 2014 to January 2015.