Navigating the planning gap

Expectations vs. reality: What investors think – and how advisers plan – for retirement income

Oct 3, 2017 @ 12:01 am

The following is an excerpt from a new research study, “The planning gap”, which was co-developed by InvestmentNews Research and Nationwide. The research is based on survey responses from 1,741 individual investors, as well as a companion survey of advisers that was completed by 343 advisers. To download the full report, click here.

Our research has uncovered a clear “planning gap” – or a significant difference in what investors think and how advisers actually create a plan for generating retirement income. 

The gap exists across all income ranges and wealth levels and clearly marks the need for advisers to emphasize the importance of managing potential post-retirement liabilities as well as assets. Our research will highlight the sources for these gaps, while also quantifying several of the most significant planning gaps. In addition, we will provide recommendations for closing the gaps and enhancing the value that advisers deliver directly to their clients. 

Our objective with this research is to provide advisers – and their clients – with actionable intelligence that presents the key elements and variables that are re-writing the formulas for retirement income planning. 

Overview and methodology

When surveying investors, we specifically focused on soliciting responses from individuals with more than $100,000 in investable assets. By focusing on a group that is already accumulating some level of wealth, we have an informed sample of investors meaningfully engaged with the notion of planning for retirement – and also able to directly speak to their active strategies and considerations for accumulating and managing wealth (including the use of financial advisers). 

An overview of the key demographic attributes of our sample of 1,741 investors can be found below:

  1. Median age: 54 years old
  2. 65% male, 35% female
  3. 27% have investable assets over $1 million
  4. 45% have household incomes greater than $150,000 annually
  5. 12% are currently retired, 74% are working full-time, 7% are self-employed, 5% are working part-time
  6. 43% of respondents currently use a financial adviser

Defining “The Planning Gap”

Across this base of investors there are indicators of uncertainty or concern about retirement at all income and wealth levels. Overall, when asked to rank their level of confidence in how prepared they are for retirement, the average participant reported a score of 7.2 on a scale of one to ten, where ten was the most confident that they will maintain a comfortable lifestyle in retirement. 

Fifty-five percent of respondents indicated that they believe they are saving enough for retirement, while 46% noted that their standard of living during retirement will likely decline. 

Not surprisingly, this prompted individuals in our survey to anticipate working longer: Retirees in our sample exited the workforce at an average age of 63. Individuals who are not yet retired, on average, noted that they anticipate being able to retire at the age of 68. 

Digging deeper into their financial expectations for retirement, there is a clear difference between investors' view of their long-term financial needs and the recommendations of professional planners. The differences can be attributed to many factors, including a range of behavioral, fundamental and emotional biases. But practically, financial advisers and planners often account for a number of additional variables and risks when constructing retirement plans – with longevity risk at the top of the list. 

While the majority of investors in our survey believe they are saving enough for retirement, their expected monthly incomes and the length of their retirements, on average, differ substantially when compared directly with the projections used by financial advisers. Figure 2 illustrates the foundational differences in retirement expectations between investors and financial advisers:

Figure 2: Investor vs. adviser retirement expectations, concerns
Expected length of retirement 22 years 30 years
Replacement rate 65% of working monthly income 80% of working monthly
Top concern/retirement planning risks
Medical expenses
Health insurance premiums
Medical expenses
Health insurance premiums

To download the full version of “The planning gap", click here.


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