Americans appear unfazed by the financial crisis and continue to have high hopes for retirement, according to new research by Allianz Global Investors. But they may need a more realistic approach to retirement planning and investing if their expectations are to be met.
U.S. investors hopeful despite financial crisis
A key finding of the survey: as stocks have regained their vigor, so has typical American optimism. Although investors say they lost an average 30 percent of their retirement savings at the bottom, they are nonetheless overwhelmingly positive about the outlook for their retirements.
A large majority (71 percent) of the 1013 Americans surveyed believe the situation will turn around and they will have a great retirement. And nearly 80 percent say they are at least somewhat confident they'll have the money they need when they want to retire. Furthermore, nearly two-thirds of investors (61 percent) believe that the market dislocation is a "temporary downturn and things will eventually go back to normal."
This refusal to learn from the experience may lead to problems down the line. "Despite this refreshing optimism, tremendous damage has been done and Americans now have a lot less accumulated for retirement than they did even a few short years ago," says Brian Gaffney, CEO of Allianz Global Investors Distributors. "Our survey reveals a need for all of us to honestly reassess our vision of retirement and to develop realistic and sustainable retirement savings models. It's important that we take to heart the lessons learned during this financial crisis and make small changes now to improve our likelihood for a secure retirement in the future."
Brian Gaffney: "A need for all of us to develop realistic and sustainable retirement savings models"
Advisors say investors need a 'reality check'
The study, conducted online by Harris Interactive, also polled 503 financial advisors in the U.S. and revealed that advisors don't share investor optimism. Though most Americans are optimistic that they will achieve their retirement goals, financial advisors have a different view. Fewer than half – 45 percent – agree that most of their clients have a realistic retirement vision.
"Confidence and optimism are admirable qualities, but when it comes to retirement planning, they should be exercised in moderation and with a sense of perspective," says Gaffney. "Indeed, in the wake of the past year's economic and market upheaval, one of the most valuable services advisors are providing is a sorely needed reality check on clients' retirement goals and planning."
Fifty-five percent of advisors say they are now helping their clients set more realistic retirement goals, and 52 percent are having frank discussions about lower expected returns and the need for increased contributions.
Many advisors believe that investor optimism about retirement and unrealistic expectations are tripping up their savings efforts. More than half (51 percent) of advisors believe their clients haven't accumulated enough retirement savings because they cling to unrealistic expectations about retirement and how to fund it.
Two thirds of advisors (66 percent) agree that investors need to adopt a new approach when it comes to investing for retirement. Many are clearly taking advantage of the economic crisis to provide the necessary perspective; 66 percent say they have had more interaction with clients about their overall retirement portfolio since the crisis began.
A 'new normal' for retirement income
"For their part, advisors recognize that a 'new normal' has taken hold, demanding that advisors and investors together engage in a front-to-back rethinking of retirement – both how to get there and how to sustain lifestyle in the retirement years," said Eric Sutherland, head of channel distribution and wirehouse national accounts for Allianz Global Investors Distributors. According to Sutherland, many investors have serious gaps in basic investing knowledge and understanding of this era's new demands, but they also realize they need help now more than ever.
Sutherland: "We believe that there is a historic opportunity now – and for years to come – for advisors to focus their clients on a more realistic retirement vision and a more practical path to achieve it."
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