New Teachers Insurance and Annuity Association Survey Identifies Factors That Build and Detract From Financial Confidence
TIAA's 2019
The survey showed a number of skills and practices that build confidence. For example, the ability to plan long-term and invest effectively are key drivers of feeling secure. Those who rate highly their ability to invest effectively are roughly three times as likely to express confidence in always being financially secure, including throughout retirement. Long-term planning can also play a role in financial confidence, as those who are able to master this skill are at least twice as likely to feel confident.
Good savings habits also build confidence as two-in-five cite saving regularly as a means of boosting financial security. Beyond saving, perhaps the most significant antidote to financial uncertainty is the presence of guaranteed lifetime income through a pension or annuity that secures monthly income for life. Nearly all respondents say it is helpful to know the amount of income they can expect each month in retirement in addition to
"A major lesson of this survey is that effectively addressing uncertainties is key to feeling financially secure", said
Paths to Financial Security Exist but Inaction and Uncertainty Persist
While there are tangible ways to mitigate financial uncertainty, many are not taking action to improve their financial confidence and situation. More than 60 percent of respondents haven't created a written financial plan for retirement; over half reported not saving as much as they should have in 2018, including 22 percent who report they saved "a lot less" than they should have; and almost two-thirds (64%) don't rely on a financial advisor for advice on achieving their financial goals.
Events beyond people's control are highly worrisome and detract from financial confidence. Indeed, the possibility of an unexpected expense is the top confidence detractor. Additionally, the majority of individuals are highly concerned about a major unexpected expense (54%), a major medical expense (54%) and significant cuts to social programs (53%). Significant portions are also very concerned about a major market decline (45%) or an increase in inflation (44%).
Income is the Outcome
Of those who participate in an employer-sponsored retirement plan, nearly seven-in-ten (69%) cite guaranteed income for life as one of their top two goals for their retirement plan and almost half (45%) say that guaranteed income for life is their very top goal. They are more likely to rank guaranteed lifetime income as one of their top two goals than keeping their savings safe regardless of what happens in the market (56%), earning a competitive rate of return on their savings (46%), or saving a specific amount of money (28%). Among the reasons guaranteed lifetime income is strongly valued: three-in-five (60%) say it provides a feeling of financial security and nearly half (46%) assert it makes it easier to save for retirement.
"Employer-sponsored retirement plans that provide guaranteed lifetime income through in-plan annuities give workers saving for retirement a method for insulating themselves from risks, such as the impacts of stock market volatility, longevity risk and even cognitive decline," said Fouche." Having monthly income that's guaranteed for life helps create certainty in people's ability to fund their necessities and can lessen the impact and stress from unexpected expenses that are beyond their control."
Retirement Plan Misconceptions
Despite the value that people put on knowing how much income they will have in retirement and in guaranteed lifetime income, there is a lot of confusion about this topic. One-third of those offered a retirement plan do not know whether their plan offers an investment menu option that guarantees lifetime income. Among those who think that guaranteed lifetime income is available in their plan, many incorrectly believe that mutual funds (35%) and target date funds (20%) secure lifetime income.
Access to Professional Advice is Helpful
Those who rely on a financial advisor express more confidence in their ability to always be financially secure, never run out of money and maintain their lifestyle in retirement than those who do not rely on one. A professional financial advisor is the top source of information on achieving financial goals, relied upon by over one-in-three (36%). Advisors are also important in saving for retirement, as over two-in-five (41%) say a financial advisor helped them determine the amount they need to save. As people get closer to retirement, the role of financial advisors becomes more critical. Among Boomers, over half say they rely on an advisor for information on achieving their financial goals (54%) and determining their savings goals (52%).
There is also interest among workers in financial wellness resources provided by their employer. Eight-in-ten workers (79%) say they are interested in wellness resources. A one on one meeting with a financial advisor is the wellness resource that garners the most attention, as a majority of workers (59%) express interest.
To view the Executive Summary click here (https://www.tiaa.org/public/pdf/957604_2019_lifetime_income_survey_executive_summary_final.pdf).
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This material is for informational or educational purposes only and does not constitute investment advice under ERISA. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor's own objectives and circumstances.
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