Client anxiety about retirement planning escalates

In March, when the stock market tanked and the U.S. economy screeched to a halt in response to the COVID-19 pandemic, many advisory clients were willing to sit tight through the market volatility, confident in their long-term financial plans.

But as lockdowns dragged on and unemployment spiked to more than 17 million people in early April, clients have become fearful, and many are wondering if they will ever be able to retire.

After polling retirement income certified professionals in early March to gauge client reactions to the market volatility resulting from the domestic spread of the coronavirus, The American College of Financial Services conducted a follow-up survey of 123 retirement income specialists in April to determine how their clients’ sentiments have changed in the past month.

Over 59% of advisers reported that clients are more concerned about their retirement prospects than they were a month ago. Nearly 93% indicated that their clients have already reached out to them with concerns about their retirement plans as a result of the escalating impact of the pandemic and market volatility, up from 66% of advisers in early March.

More than two-thirds of advisers in the survey (68%) reported that clients have made changes to their retirement plans in response to the escalating impact of the pandemic and market volatility, compared to only 36% a month ago.

Advisers noted an uptick of concerns among clients who are approaching, but not quite near, retirement age. More than 40% of advisers in the survey (41%) said the majority of clients who reached out with concerns were five or more years away from retirement, compared to just 27% of advisers reporting concerns among clients in this demographic a month earlier.

The survey also highlighted a strong correlation between the passage of the Cares Act and proactive communication between advisers and their clients. More than four-fifths of advisers (83%) said they were reaching out to their clients about the Cares Act, and 60% said they had had clients reach out to them for an explanation or support regarding the stimulus package.

Separately, a survey of 1,200 adults who are 61- to 65-years-old and have more than $100,000 in assets, found 61% are concerned about the current market volatility. The survey, which was conducted for the Alliance for Lifetime Income March 6-16, found Americans in this prime retirement age group face sequence-of-return risk, which occurs when there is a significant drop in the stock market during the early years of retirement and can threaten individuals' long-term financial security.

Among the respondents who are currently employed, more than half (52%) are not fully confident they’ll be able to retire at the age they identify as their goal. The most frequently mentioned reason for that lack of confidence is the condition of the stock market, cited by 43% of the uncertain pre-retirees.

Those who are already retired are more confident they'll have the income to cover all expenses through retirement, with 47% of retired respondents reporting they were very confident, versus 34% of employed respondents. Protected income from a pension and or annuity is the key reason for their confidence. More than 60% of the retired respondents have a pension, versus 48% of employed respondents, and 32% of retired respondents have an annuity, versus 25% of those still employed.

“This research provides financial advisers an inside look at how their clients and potential clients face the many unknowns and risks presented at this stage of life,” said Wade Pfau, Alliance fellow and professor of retirement income at The American College of Financial Services.

“Advisers who encourage and work with their clients to create a financial plan that provides for protected lifetime income can expect clients who are both more satisfied and confident, as well as more likely to stick to their plan,” Pfau said.

“When we conducted our last survey a month ago, we were more than overdue for an economic slowdown, but the surge in concern that we’re seeing underscores how unprecedented the depth and breadth of this crisis has been,” said Steve Parrish, co-director of the Center for Retirement Income at The American College of Financial Services. “Even though these findings are sobering, I’m heartened to see just how plugged in our RICPs have been to their clients’ needs as these uncertain times have progressed.”