While the focus on retirement income is slowly gaining ground among investors, clients are not nearly as worried about it as they should be.
In fact, the latest quarterly research from Russell Investment shows that most adviser clients are clinging to unrealistic expectations for how much money they will need in retirement.
“Advisers reported that only about half of their clients had realistic expectations about how much income they will be able to generate in retirement," said Phill Rogerson, a managing director at Russell.
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“The data points to a gap in terms of expectations and approaches,” he added.
Advisers ranked retirement income planning as the second most important topic, behind re-balancing and portfolio allocation.
Nearly three-quarters of responding advisers listed retirement income planning as either a core or large part of their practice.
When asked which topics are brought up most often by clients, the advisers ranked retirement income planning third, behind market volatility and government policy issues.
Advisers listed several impediments to clients' realistic expectations about retirement needs. At the top of the list: how much money clients expect to spend in retirement. Advisers also said information clients get from nonfinancial sources is a problem, as well as a lack of understanding about how current spending and savings patterns could affect retirement income.
“It was interesting to see the level of importance retirement income planning has among advisers,” Mr. Rogerson said. “But we don't see a consensus approach on how to deal with the issue yet.”
Russell's latest Financial Professionals Outlook report, which will be released on Wednesday, is based on a survey of more than 350 financial advisers.
“With 10,000 Americans reaching retirement age every day, a growing number of investors are turning to their financial advisers for help in determining if, when and how they'll be able to retire,” Mr. Rogerson said. “Most advisers are trying to tackle the retirement income challenge, but many feel the investment industry has not provided the right tools to set a standard for how this should be done.”
Nearly all respondents said they are spending time to learn more about retirement income planning and strategies. But advisers also indicated frustration over a lack of consensus on the right resources to consult for help.
Some of the popular resources used by advisers to become better educated on retirement income planning include online materials, industry peers, fund companies and accredited courses.
“Investing to produce sustainable retirement income and maintain some level of flexibility is a very different challenge than investing and saving for retirement, and advisers are clearly struggling to find the best way to do this,” Mr. Rogerson said.
He added that the financial services industry could certainly be doing a better job in offering some direction to financial advisers when it comes to retirement income planning.
“From our perspective, there's no question that the industry is racing to come up with a standard approach, but it seems like the industry has taken a product-centric approach,” he said. “We think more than half of the problem is a planning problem, and if the products don't integrate with the planning, it won't work.”
As part of that tighter integration between products and planning, Mr. Rogerson said, there needs to be a more dynamic and flexible approach to retirement income planning.
“In this industry, we often build 10-year plans as if nothing ever changes,” he said. “There should be an ongoing assessment of a client's assets and circumstances and the strategies.”
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