Mary Beth Franklin

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Mary Beth Franklin on what your clients really want when they talk about retirement.

Majority of retirees roll funds out of 401(k) plans

More than 80% who moved money worked with an adviser

Mar 15, 2016 @ 12:38 pm

By Mary Beth Franklin

+ Zoom

Back in 1982 when leading edge baby boomers were in their 30s and launching their careers, a British punk rock group called The Clash released their only hit single, “Should I Stay or Should I Go?”

Today, more than 30 years later, many of those boomers are wondering the same thing about their retirement savings: Should they let their money stay put in their former employer's 401(k) plan or rollover the funds to an individual retirement account.

It seems the majority of boomers who work with financial advisers choose “go,” and opt to move their money to an IRA in an attempt to improve their investment performance and consolidate their assets, according to a survey released Monday by the Center for Retirement Income at The American College of Financial Services.

As the national dialogue around retirement plan rollovers and the proposed Department of Labor rules to raise investment advice standards on retirement accounts continues, the survey explores the actual behavior of individuals facing the rollover decision.

The study found that the majority — 62% — of recent retirees with substantial assets in a defined-contribution plan at retirement chose to move their assets out of the plan. More than eight in 10 did so with the help of a financial adviser.

The study was based on online interviews conducted last October with 1,002 Americans age 60 or older who had retired from full-time employment within the past three years, and who had at least $75,000 invested in their former employer's 401(k) or 403(b) plan.

By comparison, of the 38% who left money in the employer plan, only about half — 56% — said they worked with an adviser. Over two-thirds of those who decided to keep their money in the employer plan said they liked the investment options. But more than half of this group also admitted it was simply easier to leave things the way they were.

“The vast majority of consumers we surveyed recognized the importance of the rollover decision and were careful with their decision making,” said David Littell, co-director of The American College's Center for Retirement Income. “However, there was evidence that those who left their money in the plan were less likely to be concerned about the rollover decision, work with an adviser or create a comprehensive plan.”

The survey found that those who rolled money over with the help of an adviser were more likely to have a comprehensive retirement plan that reflected retirement income planning strategies, including an estimate of how much income they will receive each year, where that income will come from and how long it will need to last. Respondents reported that advisers were less likely to include how to pay for long-term care and legacy planning in their comprehensive plan.

This American College survey demonstrates two important trends: Millions of soon-to-be retired Americans are interested in working with a financial adviser, and most of them are looking for guidance beyond investment advice. They want to know how to turn their savings into a reliable income stream that will last a lifetime. And some want to have broader discussions about retirement planning that might include health care costs and legacy plans.

Increasingly, clients are looking to advisers for guidance on when to claim Social Security benefits and which Medigap plan to choose. But there is an apparent gap between what clients want and what advisers are providing.

The 2015 white paper “The New Foundation of Retirement Planning: Social Security and Medicare,” produced by Senior Market Sales, an insurance marketing firm, found that although 61% of clients said they expected advice on when to claim Social Security benefits, only 36% of advisers offered such advice. Similarly, 50% of clients expect health care advice, but just 13% of advisers offer it. This presents a major opportunity for advisers and firms that do offer this specialized advice to differentiate themselves and gain market share.

Client expectations are changing for a number of reasons. For many people, health care costs will be one of the most significant expenses during retirement, and the share of health care expenses that Medicare beneficiaries pay is expected to increase.

Nearly three in four Americans say Social Security is their top source of expected retirement income for out-of-pocket health care costs, according to a 2013 survey by the Nationwide Financial Retirement Institute. As retirees see more of their Social Security benefit eaten up by health care costs, financial advisers cannot afford to overlook it.

“Those who continue to ignore the role that Medicare and Social Security play in retirement risk losing clients,” according to the white paper. “More importantly, they put their clients at risk of possibly not meeting their retirement income needs.”

(Questions about new Social Security rules? Find the answers in my new ebook.)

Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.


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