One In Three Affluent Retirees Have No Retirement Income Plan

BOSTON, MA, September 5, 2006 - Nearly half of affluent Americans nearing retirement and most affluent retirees have developed formal retirement income plans; however, one in three retirees have no plan even though many have already begun tapping their nest eggs, according to a survey conducted for MFS Investment Management.

The research also included a survey of financial advisors who service high net worth investors. On average, these advisors recommended putting together a retirement income plan at least 10 years before retirement. A bare majority (52%) of pre-retires age 55 or older do not have an income plan in place, and over a third of these do not plan to even discuss an income plan with their advisor for another six or more years, if ever.

Those were among the key findings of the MFS survey* of pre-retirees and retirees with at least $100,000 in investable assets (excluding retirement accounts and real estate) and who use paid professional financial advisors. The study, conducted in July, also revealed some stark differences between the expectations of pre-retirees and the experiences of those already in retirement. For example:

• The expected retirement age for pre-retirees is 66 (mean), while 17 percent of pre-retirees plan to work beyond 70. In contrast, retirees reported on average that they stopped working at 59 (mean).
• A majority of pre-retirees (55 percent) expect to work at least part-time in retirement, while only 18 percent of retirees are planning to work part-time. The data suggest that despite the plans of pre-retirees to supplement their income by working during their retirements, few in retirement actually do. Most advisors who participated in the survey reported that few to none of their affluent clients actually work part-time in retirement.
• More than two thirds (69 percent) of pre-retirees plan to delay withdrawing from their retirement savings accounts when they first retire. The average projected age is 68. In contrast, most retirees who have begun withdrawing from their retirement savings started doing so at age 64 (on average).
• Highlighting the dramatic shift away from employer-sponsored defined benefit plans toward individual responsibility for retirement planning, more than 70 percent of retirees rank pensions as a source of income compared to only 54 percent of pre-retirees. Conversely, 74 percent of pre-retirees rank 401(k) plans as a source versus only 33 percent of retirees.

While an overwhelming number of affluent Americans near or already in retirement say they are generally satisfied with their level of retirement savings (79 percent of pre-retirees and 87 percent of retirees), they fear that rising inflation and other issues beyond their control, especially unexpected health costs, may cause them to outlive their savings.

"Although many affluent investors have amassed sizable nest eggs, they are increasingly concerned about the possibility that their assets many not grow enough to keep them from outliving their savings," said James Swanson, portfolio manager of the MFS® Diversified Income Fund. "For those in retirement, there is a critical need to combine income generation with a growth component, particularly given the considerably longer life expectancies for Baby Boomers."

Indeed, more than half of pre-retirees (57 percent) are concerned that they might be too conservatively invested and, therefore, may not grow their assets enough during retirement to keep them from outliving their savings. However, the MFS survey reveals that, for many, their behavior does not address their concerns. For instance, more than a third of pre-retirees (35 percent) and forty percent of retirees report that they are investing more conservatively as a result of the market correction of 2000.

This behavior persists even as 61 percent of pre-retirees are concerned about the impact of inflation on their portfolios.

Meanwhile, more than half of pre-retirees (57 percent) and almost half of retirees (47 percent) expressed concern that Social Security may be cut back during their retirements. Swanson, however, noted, "Social Security covers only 39 percent of most American retiree's income needs - and Americans are living 20 to 30 years in retirement. Therefore, pursuing a high level of current income is a critical part of these investors' portfolios."

Swanson strongly suggests that investors work with a financial advisor to develop a retirement income plan that balances their need for a reliable, steady stream of income with an investment strategy that seeks capital appreciation to lessen the effect of inflation on purchasing power.

According to the MFS survey, two out of three advisors report that developing a sufficient retirement income strategy is more challenging than creating an investment strategy for clients while they are working. Virtually all advisors recommend developing a retirement income plan well before their clients retire.

One benefit of early planning revealed in the MFS survey was that investors who plan early seem to report average lower retirement ages. For instance, retirees who started planning before age 35 on average retired at an age of 58 versus 60 for those who started planning at 45 and over.

About the Survey

The results were drawn from 442 surveys completed online with 202 pre-retirees and 222 retirees between the ages of 55 and 75 who are either working full-time or retired, use a paid professional financial advisor, and report at least $100,000 in investable assets excluding retirement accounts and real estate. Also surveyed were 216 financial advisors who describe themselves as financial advisors, brokers, investment managers, certified financial planners or wealth managers. Assuming no sample bias, the margin of error for all three samples is +/- 7%. The research was conducted by Richard Day Research, Inc. of Evanston, IL.

About MFS Investment Management

MFS is a premier global money management firm with investment offices in Boston, London, Mexico City, Tokyo and Singapore. The firm's history dates back to March 21, 1924, and the establishment of the first "open-end" mutual fund. Today, MFS manages more than $168 billion in assets on behalf of six million investors worldwide as of June 30, 2006.

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