5/27/2011 4:45 PM ET|
How fear can ruin your retirement
A new study indicates recent or soon-to-be retirees have serious money worries, but they can take steps to assuage those concerns and improve their financial situation.
The idyllic, play-golf-and-travel vision of retirement may well be a thing of the past. Most new retirees are either nervous or downright frightened about their golden years, according to a new study.
Uncertainty about the future, fear of poverty, lack of confidence in their investing abilities and distrust of the financial services industry were four of the most common feelings expressed by 300 recent or soon-to-be retirees in interviews conducted between 2008 and 2011 by Financial Engines, a Palo Alto, Calif.-based investment advisory firm that provides services for companies that offer retirement savings plans to their employees.
More than half of those surveyed were uncertain what the future might bring, and almost half of them said they were afraid of falling into poverty. One 66-year-old retiree quoted in the report said he is "having night sweats now. I'm really concerned about having enough. You never know how long you'll live and how much you'll need."
Often, their fear hindered these retirees from making key financial decisions, said David Ramirez, portfolio manager at Financial Engines and co-author of the report.
"Certainly the minority is the retiree that's absolutely confident about what the future will bring," Ramirez said. "These emotions are creating very strong behavioral barriers that prevent them from getting help."
Frozen with fear
One common reaction to their financial fears: Retirees did nothing. "I really don't have a financial plan," said a 64-year-old retiree quoted in the report.
Said one 60-year-old about his investing uncertainty: "Trying to shift stuff around at our age is scary. . . . If you make a mistake, we're in a cardboard box eating dog food. I don't have 20 years anymore."
Others resorted to wishful thinking. Carol, a 63-year-old quoted, said, "I'm just basically baffled. . . . I'm one of those believers that it will all work out somehow."
Even some of the retirees who had done everything right when they were saving for retirement said they didn't know what to do with their money now that they are no longer working, Ramirez said.
"When should I take my pension? When should I take my Social Security? These are complex questions," he said. "And, sadly, many of them are irreversible, and the consequences of making the incorrect decision can influence how the rest of your life goes."
He added, "Given that the stakes rise so much, even people who were confident before retirement often don't feel as confident" after they retire.
Nowhere to turn
Many of the retirees said they needed financial advice. At the same time, they expressed distrust of the financial services industry and a fear of hidden fees and costs.
One 63-year-old said, "If I trusted an adviser, then I'm always wary because I know that they are out to make money. . . . I don't trust them handling my money."
Said another respondent, "My overall impression with investment advisers is that their ultimate goal is their own wealth, not mine."
Still, the retirees with large account balances had no shortage of offers of help; financial advisers seek them out to offer their services. For those with smaller account balances, that was not the case.
"There's that 'hunted' category," Ramirez said. "Sadly, there is also the ignored group. These are people who don't have the large enough balances. One woman said, 'They keep just asking what my balance is, and when I told them, they made me feel small.'
"It came up quite a bit -- people with small balances often would apologize for having a small balance," Ramirez said.
The findings offer a clear message for the financial services industry, he said. "One of the most important takeaways for us is people don't need to be judged," he said. Advisers "need to be empathetic about this generation's emotional state and the challenges they've had."
What can retirees do?
What can retirees and near-retirees do to assuage their concerns and get their financial house in order? First, ask your employer for help. Some companies offer a retirement income product that may be a good option for helping you manage your money through retirement.
Twenty-seven percent of companies provide some form of retirement income product, either inside or outside the savings plan, according to a survey of 210 employers by Aon Hewitt, whose retirement plans cover more than 6 million workers.
And of those that don't currently offer a retirement income product, 13% said they are very likely to add one in 2011.
If your employer does not offer help, consider getting professional advice. Some companies, such as Smart401k.com, offer retirement investing advice for a flat annual fee.
Or look for a fee-based financial planner. That way, Ramirez said, "you understand exactly how they are compensated, and you can make sure their interests are highly aligned with your own."
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