The retirement advice gap creates an opportunity for advisors

By Susan Rupe

A retirement advice gap exists between what advisors tell clients about protected income and what those clients hear about it. But that gap creates an opportunity for advisors

That was one of the takeaways from the latest The Protected Retirement Income and Planning study by the Alliance for Lifetime Income. The study results were presented during a recent webinar.

This year marks the beginning of the Peak 65 zone, in which the U.S. will see the largest surge of the population hit age 65 in history. More than 4 million Americans will turn 65 each year through 2029.

Peak 65 has implications for people who are entering retirement and already in retirement, as well as for the financial advice industry, said Suzanne Norman, education fellow with the Retirement Income Institute.

Consumers, investors and advisors view retirement as a “beginning,” Norman said. They see the end of their working years as a time to feel free, excited and relieved. Most of those in the Peak 65 group said they believe they will live longer than prior generations, with three in 10 believing they will make it to age 90 and beyond.

Optimistic yet unprepared for retirement

But despite this rosy view of retirement, about half of those in the Peak 65 zone are unprepared for it, the study showed.

Half of Peak 65ers have less than $100,000 saved for retirement. Half are retired and no longer accumulating assets, half are drawing Social Security and half say they are not confident their money will last throughout their lifetimes. Many in this age group are financially supporting family members. In addition, six in 10 of the Peak 65 group do not work with a financial professional.

Norman said that when preretirees were asked about their biggest challenges, the top answer was “not knowing how much I need to be comfortable in retirement.” Those who are already retired cited their biggest challenge as “prioritizing what is important in life,” followed by “having enough money to make it to next month and pay my bills.”

“You see the theme here – it’s money, money, money,” Norman said.

Where a disconnect occurs among the Peak 65 cohort is that most are optimistic about retirement despite grim financial reality and a lack of financial knowledge, she said.

Retirement advisors have a burden

Meanwhile, advisors have a heavier burden to broaden the retirement conversation and conduct difficult conversations on retirement, the study showed. Financial professionals underestimate how much investors value protection while investors say their advisors don’t discuss it as often as advisors say they do. Advisors also overestimate how often they discuss issues such as cognitive decline with their clients.

“The idea is to highlight these opportunities. Broadening the retirement conversation will secure your clients and deepen the relationship and hopefully the retention you have with them,” Norman said.

Discussion gaps occur in other areas related to aging and retirement, the study showed.

On average, 59% of investors said they believe they will live in independent living, assistant living or a nursing home at some point. But only 34% of advisors said they believe their over-65 clients will need to leave their homes at some point.

“This is a very important step in someone’s lifespan,” Norman said. “In helping them prepare for this, we not only have an opportunity to help them plan but it’s also a conversation we can have with the next generation.”

A knowledge gap on Social Security

Social Security is another topic where there is a significant gap. The study showed 15% of preretirees said they know exactly how much Social Security they will receive in retirement, while 43% of advisors said their nonretired clients age 45 and older know now much Social Security they will receive.

A breakdown of investor responses on Social Security showed that 50% of respondents have some idea of what they will receive while 10% have no idea of what they will receive.

In addition, 92% of financial advisors said they helped their clients decide when to begin taking Social Security but only 22% of investors said their advisors helped them make that decision. About two-thirds of investors said they made that decision on their own.

The average age at which advisors recommend clients start claiming Social Security is 67.8 years old, while 64.1 is the average age at which individuals actually start claiming it. This early claiming leads to a $3.4 trillion potential income loss, or about $95,000 per household, Norman said.

“This is a big deal because, when we look at it, there is a lot of DIY going on here in planning for Social Security,” she said. “Less money coming in means more pressure on the retirement portfolio.”

Discussing protected income is crucial

Advisors say they are discussing protected income with their older clients, but clients say it’s not so. The study showed 62% of advisors said they bring up the topic while only 27% of investors said they do.

“You might be saying it but are they hearing it?” Norman asked. “How are you introducing the topic of protection with your clients?”

Discussing guaranteed lifetime income is crucial to serving and retaining clients, the study said. Nearly 60% of investors said financial professionals have a responsibility to present financial products that provide guaranteed lifetime income as an option to their clients. Forty percent said that if their advisors did not present all possible lifetime income strategies to them, they would consider leaving their advisor.

“Be the first one to have this conversation with them and not the last one,” Norman said.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on X @INNsusan.