Even Affluent Americans Lack a Comprehensive Plan

December 14, 2011 (PLANSPONSOR.com) -  “Comprehensive” is the key word, according to a new Wells Fargo poll of affluent Americans regarding retirement. 

A survey of affluent Americans from Wells Fargo & Company shows that many of them are feeling some of the same deep insecurities felt by middle-income Americans in regards to their ability to retire in comfort. 

“We find the rich versus poor narrative in the U.S. is more complex than we might expect, with fears and concerns about retirement felt along the income spectrum,” said Karen Wimbish, director of Retail Retirement at Wells Fargo at a media briefing in New York.

In the survey, “affluent” was defined by having more than $100,000 in investable assets. This was further divided into “mass affluent” – having between $100,000 and $250,000 – and “affluent” – having more than $250,000. The ages ranged from 25 to 75, with most of the 801 respondents being over 40. 

Wimbish said she was surprised by several of the findings. For one thing, nearly one in five (19%) of the mass affluent respondents said they will need to work until “at least age 80,” a sentiment reported by 25% of middle-class Americans surveyed at the same time. Among all the affluent surveyed, 12% say they will work until age 80.

“I don’t think companies are planning on keeping people around past the ages of 65 or 75,” she said. The effects this will have on younger employees hoping to move up in their company may be cause for concern.

Also surprisingly, 21% of respondents between the ages of 60 and 75 – those in the “red zone” of retirement – don’t know when they’ll be able to retire. “You’d think they’d have more clarity at that point, but far too many are unsure,” noted Wimbish. 


She also discussed the value of having a comprehensive retirement plan in place. While many affluent Americans say they have a plan, when you dig a little deeper, significant holes in these plans exist. “We found that many of these plans do not include a budget, have expected deferral rates of 8% or are not written down,” she said. She also said more affluent respondents are more likely to have a comprehensive plan.

This lack of a comprehensive plan can significantly affect one’s confidence in their ability to retire. The survey found that about a quarter of affluent Americans (23%) say they are not confident they will have saved enough for retirement, and this is especially true for Americans with assets between $100,000 and $250,000 (33%), people without a written retirement plan (32%) and women (31%). Additionally, four in 10 affluent Americans (40%) say their biggest fear about retirement is they "will do all the right things today and it still won't be enough for tomorrow" and 9% fear they "will have under saved and won't recover."

Another area of concern is in spending habits. Wimbish said affluent Americans want to cut back on spending, but are having trouble doing this. She added, this demographic should be able to find places to cut back. The survey found more than one third (37%) say they need to significantly cut back their spending to save for retirement, including nearly half (48%) of those with $100,000 to $250,000 in investable assets.

Reliance on 401(k)s and their Financial Adviser  

Among the affluent surveyed, 401(k)s or similar plans represent 42% of household assets. Affluent Americans contribute a median of 10% of their incomes to 401(k) accounts, compared to 6% contributions by middle class Americans.

"The importance of the employer-sponsored plan in helping save for retirement can't be stressed enough," Wimbish said. "Many people simply would not have saved as much if it wasn't for the 401(k)."

Advisers still have a lot of ground to cover with their affluent clients, said Wimbish. The industry has been focused on the accumulation phase, but now as more affluents approach retirement, they want to be able to take the entirety of their assets and say, “Okay, how does this translate into retirement income?” said Wimbish. To help clients answer this question, Wells Fargo had a “soft launch” earlier this year of an “income illustrator,” which helps clients see where their money will be coming from in retirement.  

Wimbish says that the “income illustrator” (an official name for the tool has not been decided) guides advisers and clients to look at their assets in three categories: 1) guaranteed income, such as Social Security and perhaps annuities, 2) stable investments, such as bonds and other funds that provide interest income, but are not guaranteed and 3) something still in the market to protect against inflation, such as dividend paying stocks.

Wells Fargo is hoping to have a full program out for advisers to use sometime in 2012, according to Wimbish.

The Role of Social Security  

The survey also sheds light on what is likely to be one of the most contentious political topics during the coming election year: the degree to which Americans will support cuts in Social Security and Medicare to keep these programs viable into the future and lessen the country's debt load.

While affluent Americans are slightly more willing than middle-class Americans to take a reduction in these benefits to help the country (47% of affluent versus 43% of middle-class), among the affluent there is no sharp drop-off among people closer to retirement. Among the middle class, willingness to take cuts plunged from 47% for people in their 40s to 28% for people in their 50s to 19% for people 60 to 75. Among the affluent, the willingness to take cuts was relatively flat at 49% for people in their 40s, 43% for people in their 50s and 44% for people age 60 to 75.

Affluent Republicans (52%) are somewhat more willing than affluent Democrats (46%) to take personal cuts. Other affluent Americans who are more open to benefit cuts include those who have a child under the age of 18 (54%), have investable assets of $250,000 or more (52%), feel confident the stock market is a good place for retirement investments (52%) and are married (50%).

 Age and Gender Considerations  

Previous studies have shown that while Americans in their 50s or younger are worried about their ability to retire in comfort, those in their 60s or older feel more secure. Wells Fargo said this is because a much higher percentage of people above 60 have pensions, and proposals floated in Washington to cut future Social Security or Medicare benefits have avoided changes for those already retired or close to retirement age.

"We've thought that for the most part today's retirees felt 'ok' with the future, yet here is a whole group of them saying, 'maybe not,'" said Wimbish.

The survey shows that healthcare costs are a significant concern among affluent Americans with almost a third (28%) saying that paying healthcare bills is the leading day-to-day financial concern, followed by monthly bills (16%) and saving money for retirement (13%).

Affluent women surveyed are significantly less confident about retirement than men. The least confident of all are single women, and the most confident are married men.

"Despite the fact that women hold half the high paying managerial positions in the U.S. workforce and they make a majority of household buying decisions, women continue to lag behind men in their confidence in preparing for retirement and this is particularly true for single women," Wimbish noted.

The survey also found:

•  Twice as many affluent women as men agree they will need to work until age 80 to have enough savings to live comfortably in retirement (18% of women vs. 9% of men).

•  Less than half of women (42%) with investable assets of $100,000-$250,000, say they have a written plan versus 59% of women with assets greater than $250,000.

•  Nearly one third (31%) of affluent women say they aren't confident they will have enough saved to live the lifestyle they want throughout their retirement, vs. only 18% of affluent men.

•  Single women are the least confident that they will save enough to retire comfortably: 44% said they weren't confident, compared to 27% of married/partnered women and 17% of married/partnered men.

•  Among affluent women, — who are the lead drivers of America's consumer economy — two in five (42%) say they need to significantly cut back spending today in order to save for retirement, vs. 34% for men.

•  Asked to name their biggest fear about retirement, 48% of affluent women said they fear they "will do all the right things today and it still won't be enough for tomorrow," vs. 35% of affluent men. Affluent women are less likely to say they "have no fears, it will work itself out" than men (42% for women, 55% for men).

•  Women are more likely than men to cast aside the idea of a retirement age, with 80% of women vs. 67% of men saying it is more important to have a specific amount saved before retirement, regardless of age, than it is to retire at a specific age, regardless of savings.

•  Men are more likely to expect to receive or already receive a pension—57% of men compared to 47% of women.

•  Men are much more likely to say they'll work in their retirement years because they "want to" rather than "need to," 42% of men vs. 4% of women. Among those age 40 to 49, half (50%) of men say they will work by choice, vs. 39% of women.

•  The affluent men surveyed have saved a median of $400,000 for retirement vs. $250,000 saved by affluent women. Affluent men also say they need more: a median of $750,000 to support themselves in retirement, compared to $500,000 estimated by affluent women.

“It’s very concerning to me that women are under the impression they don’t need as much saved as men do for retirement, when in fact, they’ll need more than men,” Wimbish added.

About three quarters of non-retired affluent Americans (73%) say having a specific amount of money dictates the time of retirement and not the age one reaches, a view held by middle class Americans.

In addition, the idea of amassing savings just to pass it on to heirs is changing, as an emphasis on enjoyment today takes precedence. When affluent Americans were asked if they had enough money for retirement, which is the higher priority; 69% said they would "use the money now to experience with children" vs. 22% who said they would save the money to pass on to heirs.

At the same time, only 30% of affluent Americans said they "accept" that they will not leave an inheritance to their descendants because they need to use the money for their own retirement. This acceptance rises to 36% for those with $100,000 to $250,000 in assets and falls to 25% of those with $250,000 or more.

Women are more likely than men to expect they won't be able to leave an inheritance (35% vs. 26%). This expectation is most common among people in their 50s (38%).

More information is available on Wells Fargo's retirement site at https://www.wellsfargo.com/investing/retirement/. Wells Fargo also has a blog, which Wimbish said is more geared towards women, at https://www.wellsfargo.com/beyondtoday/