The survey, “U.S. Trust 2013 Insights on Wealth and Worth,” found six in 10 nonretirees have been calculating their retirement income by reviewing expected distributions from retirement savings accounts. However, many have not adequately accounted for the impact of inflation (47%), taxes on their investment income (52%), life expectancy (56%), the cost of long-term care (62%), or any financial support that might be needed by their children (80%) or parents (82%).
In addition, the survey found three-quarters of respondents have not factored in any increase or decrease in real estate values. And yet 23% of retirees and 52% of nonretirees (including 39% of Baby Boomers) say primary residential real estate is important to funding their retirement.
Most troubling, according to the survey, was an apparent disconnect between the goals and proactive wealth planning of respondents.
“The majority of people we surveyed grew up in middle-class families and created their own wealth. They don’t see themselves as wealthy, and many are unaware of risks and circumstances that grow increasingly complex as wealth accumulates,” said Keith Banks, president of U.S. Trust. “The wealthy have been disciplined about protecting their assets from market loss, but may have a false sense of financial security. They are not adequately planning for family health concerns or for the retirement that they want.”
Despite these gaps in retirement planning, many felt they will have sufficient retirement income, though this response tied in strongly with household income. Sixty-two percent of high net worth households, including 52% of those still working, are very confident they will have sufficient income in retirement, in contrast to the rest of the U.S. population.
Further results on financial security showed 88% of those surveyed feel financially secure right now, with 48% feeling even more financially secure today than they did five years ago. Those who do not feel confident about their future financial security are more likely to be women, members of Generation X (adults ages 33 to 48) and households in the highest tier of the high net worth segment, all of whom share a primary concern about income in retirement.
Working and Retirement
The survey found one in three high net worth adults younger than 49 see themselves working beyond age 65, and six in 10 Baby Boomers, many already of retirement age, now have plans to work beyond age 65.
Once retired from their current occupation, 11% of respondents say they are likely to continue working full-time in a new endeavor, and 41% expect to continue working on a part-time basis. More than half (54%) of those in high net worth households would like to spend time volunteering.
Family and Finances
Long-term care and out-of-pocket health care costs, combined with financial support for extended family, are weighing heavily on families, particularly women and younger generations, yet are risks to wealth that are not well reflected in financial planning. Forty-seven percent of all respondents have created a financial plan to address long-term care needs that they and their spouse or partner might need, but only 18% have a financial plan that accounts for parents’ long-term care costs.
Only one-quarter (27%) of Baby Boomers and 16% of those older than 68 say they ever expected their parents might turn to them for financial assistance. Yet, one-third of Generation X and nearly half (46%) of Generation Y expect their parents or in-laws to rely on them for financial assistance at some point in their lives.
Sixty-three percent of wealthy people feel responsible for financially supporting their parents or in-laws if needed, even if it jeopardizes their own financial security, and 55% feel a responsibility to provide financial assistance for less financially fortunate siblings if they were to need it. Fifty-six percent of wealthy parents say they provide financial support to their adult children.
Nearly half (46%) of respondents have provided substantial financial support (not a loan) to adult family members other than their own spouse or partner. More than two-thirds (69%) do not have a financial plan that accounts for the financial needs of any of these other adult family members.
Eighty-eight percent of parents agreed their children would benefit from discussions with a financial professional. One in three (31%) respondents received formal financial training themselves from a professional adviser. Yet only 16% of parents have provided, or have plans to provide, their children with access to formal financial skills training.
Other findings from the survey include:
- Six in 10 (60%) high net worth investors say asset growth is a higher priority than asset preservation, a reversal of goals from a year ago when nearly six in 10 (58%) said that asset protection was more important. Yet, nearly two-thirds (63%) still say that reducing risk and achieving a lower rate of return is more important than pursuing higher returns by increasing risk.
- Only one-quarter of all survey respondents attribute the majority of their wealth to an inheritance. Those who have inherited wealth are more likely to want to leave an inheritance themselves. Seventy-seven percent of people who inherited the majority of their wealth, and 63% of those who earned it, consider it an important goal to leave a financial inheritance to the next generation.
- Two in three Baby Boomers do not expect to receive an inheritance, while 57% of adults younger than 32 do expect an inheritance. Sixty-four percent of Baby Boomers, compared to 78% of adults younger than age 32 and 72% of those older than 68, think it is important to leave an inheritance.
The survey included responses from 711 high net worth adults in the United States with more than $3 million in investable assets. It was conducted online by research firm Phoenix Marketing International in February and March of 2013.
More information about the survey can be found at http://www.ustrust.com/survey.