As nest eggs grow, so does need for expertise

Like the Ancient Mariner surrounded by “water, water everywhere, nor any drop to drink,” Americans have managed to amass nearly $14 trillion in retirement savings — but most don’t have a clue how to spend it.

That’s my literary interpretation of some year-end reports and surveys that show too many Americans haven’t saved enough for retirement, and most of those who have accumulated a nest egg are desperate for advice on how to convert it into income that can last a lifetime.

Advisers, are you up to the challenge? 2015 could be a big year for you.

Let’s start with the money. Retirement assets grew 17% between 2012 and 2013, reaching $13.9 trillion by year end, according to the new Hearts & Wallets report, “Portrait of U.S. Household Wealth: Market Sizing, Segmentation and Product Ownership.” It was the fastest growth in retirement assets since the end of the Great Recession, when they had decreased to $8.1 trillion from $10.5 trillion.

Individual retirement accounts strengthened their leadership position as the fastest-growing and largest retirement asset, growing nearly 20%, to $6.5 trillion, at the end of 2013. Private defined-contribution plan assets grew 20%, to $4.9 trillion.

“Rollovers out of employer plans into IRAs used to be the most important type of money movement in retirement assets,” said Laura Varas, partner and co-founder of Hearts & Wallets, a financial research firm. “But now that the IRA category is so much bigger than DC, shifting IRAs from one firm to another is becoming more important.”

RECORD WEALTH

The Hearts & Wallets report showed that seniors 65 to 74 enjoyed the largest rise in aggregate wealth of any segment. Collectively, this group controlled a record $3.5 trillion by year-end 2013, up from $2.3 trillion the previous year.

Many of those Americans are desperately in need of financial advice, even if they don’t realize it.

A recent survey by The American College of Financial Services found that only 20% of retirement-age Americans can pass a basic quiz on how to make their nest eggs last throughout retirement.

In fact, a large majority of people 60 to 75 with at least $100,000 in assets lack the knowledge they need for a financially secure retirement in areas such as life expectancy, Social Security, long-term-care needs and investment risk. Eighty percent of the more than 1,000 respondents to the online survey scored an F, meaning they answered 60% or less of the questions correctly.

Despite their failing retirement income grades, many respondents are surprisingly optimistic about their retirement prospects. Fifty-five percent consider themselves well prepared to meet their income needs in retirement, and 91% are at least moderately confident in their ability to achieve a secure retirement, according to The American College’s Retirement Income Literacy Survey.

“No one liked getting Fs back in school, but retirement income literacy is a test Americans simply cannot afford to fail,” said David Littell, retirement income program director at the New York Life Center for Retirement Income at The American College.

“Workers are increasingly on their own when it comes to making financial decisions, and a dwindling few have access to guaranteed income from pension plans,” Mr. Littell said. “Now is the time to raise retirement income awareness and give Americans the strategies and knowledge they need to address this challenge.”

Separately, a new report from the LIMRA Secure Retirement Institute found that half of all pre-retirees and retiree households with assets of at least $100,000 are interested in converting assets into guaranteed income products such as annuities to create lifetime income in retirement.

ANNUITIES EDUCATION

“Advisers and companies have an opportunity to help educate consumers about the benefits of annuities,” said Matthew Drinkwater, associate managing director of the LIMRA institute. “Taking the time to explain how these products are designed and the unique value proposition they offer can address the very things these consumers say are most important to them.”

When it comes to making New Year’s resolutions, most Americans continue to be more concerned about their waistlines than their wallets. Thirty percent of respondents to the annual New Year’s resolution survey from Allianz Life Insurance Co. of North America chose financial stability as their top focus for 2015, and 15% said they will include financial planning in their resolutions for the upcoming year.

But the Allianz survey offers a glimmer of hope. Nearly a quarter of respondents said they are more likely to seek the advice of a financial professional in 2015, up from 19% in the previous survey.

Here’s wishing all InvestmentNews readers a busy and prosperous New Year!

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