One Question Advisors Should Be Asking

Among the millions of workers in every generation — millennials, Generation X and Baby Boomers — lies a vast, simple opportunity for financial advisors: calculate a retirement savings goal by answering the question “How much?”

The question is simple to ask: How much does a worker need to set aside to retire?

Yet the answer is far more difficult to pin down, which is why so many people simply guess at the number they need to retire: $100,000? $500,000? $1 million?

Nearly half of all workers – 47 percent – say they guessed their retirement savings needs, according to the 17th Annual Transamerica Retirement Survey of Workers.

Broken down further, 49 percent of millennials, 52 percent of Generation Xers and 42 percent of baby boomers played the guessing game.

Even among workers who use a financial advisor, 74 percent report that they use an advisor to make a retirement investment recommendation. But only 49 percent say they use an advisor to calculate a retirement savings goal, or develop a general financial planning strategy around cash flow analysis or budgeting.

So while advisors are popular choices to influence future income decisions, far fewer workers report looking to an advisor to help with current expenses and savings, the survey found.

“That’s where an advisor can really add value and have a conversation around underlying assumptions,” said Catherine Collinson, president of the Transamerica Institute and the Transamerica Center for Retirement Studies, in an interview with InsuranceNewsNet.

Only 65 percent of millennials, Americans born between 1979 and 1996, report using an advisor for investment recommendations.

By contrast, 81 percent of baby boomers, Americans born between 1946 and 1964, reported using an advisor for such recommendations — a 16 percentage point spread between the three generations, according to the survey.

But among workers who reported using an advisor, 52 percent of millennials said they used an advisor to calculate a retirement savings goal, compared with 45 percent of baby boomers who said they used advisors for the same reason.

Savings Goals and Retirement Strategy Tightly Connected

Calculating a savings goal dictates the rest of the retirement income strategy. The more money saved to the point of retirement, the less investment risk retirees are forced to take.

Reaching the savings goal means advisors need to bestow some tough love by slashing expenses, insist that a client raise income by finding a higher-paying job or suggest a client retool his or her skills to take advantage of changing labor demand, Collinson said.

Among all workers, 43 percent estimated needing less than $500,000 in retirement savings, 21 percent estimated needing between $500,000 and $1 million, 21 percent estimated needing between $1 million and $2 million, and 15 percent $2 million or more, the survey found.

Among millennials, 47 percent estimated needing less than $500,000. Among Generation X, 38 percent estimated needing less than $500,000, and among baby boomers 39 percent estimated needing less than $500,000, the survey found.

How much a worker needs to set aside depends on individual tastes and needs.

Some retirees want to travel the world and need to save more money than those who prefer to read Harper Lee’s latest novel “Go Set a Watchman” in a seaside bungalow.

Results were published last month in the 17th Annual Transamerica Retirement Survey of Workers, which was conducted in April and May among a representative sample of 4,161 full- and part-time workers by Harris Poll.

Workers Want Advice, Though Few Have an Advisor

Not only do most workers – 59 percent of all workers – say they want some level of advice when saving and investing for retirement, but demand for that advice is consistent across all three generations, the survey found.

Among millennials and members of Generation X, 60 percent of each group report wanting some form of advice. Among baby boomers, 56 percent report wanting some form of advice, the survey found.

Only 39 percent of workers who are saving and investing for retirement use a professional financial advisor to help them manage their savings and investments, the survey found.

In addition, 34 percent of all workers said a financial advisor would motivate them to learn more about saving and investing, and 27 percent of all workers report relying on a financial planner or broker for retirement planning and investing.

Across the three generations there’s “ample opportunity” since so few workers use an advisor, Collinson said, yet so many workers reveal the desire for financial advice.

“One group that can really use a financial advisor is Generation X and unfortunately they are living up to their name about being invisible,” she added.

Squeezed from parents above them and tending to the needs of children behind them, Generation X, Americans born between 1965 and 1978, is an underserved market where advisors can make a big difference, she said.

Leading edge members of Generation X turned 50 last year and for the first time retirement is a not-so-distant sight on the horizon for members of that generation, she said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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