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Merrill Lynch Study Finds New Retirement Realities Usher in Opportunities and Challenges

Wednesday, February 15, 2017 11:00 am EST

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"As Americans gear up for longer retirement experiences, the responsibility for funding these later years is landing much more on their shoulders"

Today, Bank of America Merrill Lynch released a breakthrough new study, which revealed major gaps in retirement readiness. Among pre-retirees, the survey discovered that half don’t have any positive financial role models and consider finance topics too taboo to discuss openly. Furthermore, financial decisions are the most second-guessed of any major life decisions, and people are more concerned about their personal economy than the overall economy. The study also explores a vast range of lifestyle and financial trade-offs and course corrections people would be willing to make to help achieve a more financially secure future.

This new study, “Finances in Retirement: New Challenges, New Solutions”, is the capstone of eight studies conducted in partnership with Age Wave. This study concludes a first-of-its-kind, four-year, 50,000-respondent investigation focused on understanding the transforming nature of retirement through seven interconnected “life priorities” – family, work, health, home, giving, leisure and finances.

Key findings from this latest survey of more than 4,800 respondents include:

  • While most Americans realize retirement will be the biggest purchase of their lifetime, costing 2.5 times the cost of an average home, 81 percent say they do not know how much money they will need to fund their retirement.
  • While most people say they want to live to the age of 90, only 27 percent of pre-retirees age 50+ feel financially prepared to fund a retirement that lasts 10 years, let alone 20-30 years.
  • Americans are saving only a fraction of what they think they should: 5.5 percent1 vs. 25 percent of their annual income (after taxes).
  • More than half of millennials feel a secure retirement is beyond reach, compared to 30 percent of baby boomers who feel this way. And millennials expect 65 percent of their retirement income to come from personal sources, including savings and continued employment, far more than earlier generations.
  • The three biggest retirement-related financial worries for most Americans are 1) a costly health issue impacting them or loved ones; 2) inflation – the rising cost of life; and 3) not having enough money to do what they would like.
  • People say the cost of basic expenses and prioritizing paying down debt are the two biggest barriers to saving more for retirement. And they are far more concerned about “their” personal economy than “the” economy.

“As Americans gear up for longer retirement experiences, the responsibility for funding these later years is landing much more on their shoulders,” said Lorna Sabbia, head of Retirement and Personal Wealth Solutions at Merrill Lynch. “To navigate this new landscape, today’s retirees and future generations will need to play a more active role, which includes closing the savings ‘intention-action’ gap, planning ahead to meet their retirement goals and regularly course-correcting along the way.”

Bridging the intention-action gap
Today’s picture of retirement readiness shows significant room for improvement. Americans age 50+ graded themselves a “C-minus,” on average, for financial and savings behaviors. The survey also found the need to both encourage new discussions and break some taboos around sensitive but important financial topics in order to close knowledge gaps and increase confidence:

  • Low financial confidence: Americans are most likely to second-guess decisions related to personal finance (36 percent) - far more than work (18 percent), health (15 percent) or their home or living situation (8 percent).
  • Lacking a money role model: Half of age 50+ pre-retirees say they do not have a positive role model when it comes to financial planning.
  • Financial jargon: Sixty-five percent of Americans say the language of finance is confusing and not user-friendly.
  • Taboo conversations: Americans are seven times more likely to say that talking about personal finances is taboo than they are to say it can be discussed openly. And while people seem very willing to discuss a wide range of personal issues with their best friends, only 11 percent feel comfortable discussing their personal finances with them.
  • Trigger points: Among those saving for retirement, the top triggers that got them saving were an employer offering a retirement savings plan (46 percent) or information about retirement benefits (26 percent), rather than reaching a certain age.

“In order to better experience the great ‘upsides of aging’ and the new freedoms retirement can offer, people could take steps to better understand their finances, more openly discuss finance topics and seek out positive role models – and that process can start now, no matter what age you are,” said Kevin Crain, head of Workplace Financial Solutions. “This also opens doors for employers to play an even larger role in empowering Americans to financially prepare for their futures.”

New choices: Money-saving trade-offs and course corrections
Although most retirement preparedness studies have focused primarily on savings patterns, this investigation uncovered a myriad of trade-offs Americans would consider in order to improve their financial security during retirement. As tens of millions of boomers migrate into retirement, we’re likely to see a range of potential course corrections to modify family spending, continue working, downsize or relocate one’s home, barter time for services and even new innovations in the “sharing economy” geared to retirees. Some examples of course corrections include:

  • Health: Ninety-one percent would make healthier choices to reduce potential expenses in later life, and the same percentage would use more generic medications and supplies. Sixty-eight percent say they would consider purchasing long-term care insurance.
  • Work: Three-quarters would be willing to work longer, preferably part-time, to shore up their savings (note: only 43 percent would want to work full time); and 67 percent would be open to learning new skills to be able to work at something different.
  • Family: Eighty-four percent would like to educate their family on ways to be more financially independent (nine in 10 of all Americans want basic financial education to be a standard part of high school curriculum); 70 percent would consider cutting back on support to adult children; and only 30 percent would ask family members to provide help to them.
  • Leisure: Ninety-five percent of retirees say they’d prefer to have more enjoyable experiences than buy more things; 81 percent would increase use of community recreation programs; and 70 percent would be willing to stay with friends or family when traveling to reduce costs.
  • Home: Three in four say they would downsize their home to both lower ongoing costs and benefit from the equity; 67 percent would be willing to move to a less expensive location; and 47 percent would consider selling their home and renting an apartment.
  • Giving: Three-quarters would volunteer more of their time and reduce monetary donations; 71 percent would consider leaving less to their loved ones; and 69 percent would be willing to barter their time and skills with others in exchange for their time and skills.
  • Finances: Ninety percent of people would be willing to cut back on basic expenses and save more; 77 percent would increase use of tax-protected retirement accounts; two-thirds would sell belongings or real estate that they no longer need; and three in five would adjust the timing of their Social Security benefits.

“This study underscores that thriving in retirement requires looking through the interconnected lenses of all major life priorities – family, health, home, work, leisure, giving and finances – and anticipating how you want to live, what matters most to you, and the trade-offs you can make today to more generously fund your future self,” said Ken Dychtwald, Ph.D., CEO and founder of Age Wave. “Although we are all challenged to fund our longer lives, this suite of studies has repeatedly revealed that Americans remain quite hopeful and are willing to consider a wide range of course corrections in order to enjoy a secure retirement.”

To download the “Finances in Retirement: New Challenges, New Solutions” study and interactive graphics, visit www.ml.com/retirementstudy. This report is based on a nationally representative survey of 4,854 respondents age 25+, and is the capstone study of a series of in-depth studies focusing on seven life priorities, including an initial benchmark study. To access all eight studies and additional content and resources related to these seven life priorities, visit www.ml.com/retirementstudy.

1 Federal Reserve, 2016 November

Age Wave
Age Wave is the nation’s foremost thought leader on population aging and its profound business, social, financial, health care, workforce, and cultural implications. Under the leadership of Founder/CEO Dr. Ken Dychtwald, Age Wave has developed a unique understanding of new generations of maturing consumers and workers and their expectations, attitudes, hopes, and fears regarding retirement. Since its inception in 1986, the firm has provided breakthrough research, compelling presentations, award-winning communications, education and training systems, and results-driven marketing and consulting initiatives to over half the Fortune 500. For more information, please visit www.agewave.com. (Age Wave is not affiliated with Bank of America Corporation.)

Merrill Lynch Global Wealth Management
Merrill Lynch Global Wealth Management is a leading provider of comprehensive wealth management and investment services for individuals and businesses globally. With 14,629 financial advisors and $2.1 trillion in client balances as of December 31, 2016, it is among the largest businesses of its kind in the world. Merrill Lynch Global Wealth Management specializes in goals-based wealth management, including planning for retirement, education, legacy, and other life goals through investment, cash and credit management. Within Merrill Lynch Global Wealth Management, the Private Banking and Investment Group focuses on the unique and personalized needs of wealthy individuals, families and their businesses. These clients are served by more than 190 highly specialized private wealth advisor teams, along with experts in areas such as investment management, concentrated stock management and intergenerational wealth transfer strategies. Merrill Lynch Global Wealth Management is part of Bank of America Corporation. For more information, please visit https://www.ml.com/financial-goals-and-priorities.html.

Bank of America
Bank of America is one of the world's leading financial institutions, serving individual consumers, small and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 46 million consumer and small business relationships with approximately 4,600 retail financial centers, approximately 15,900 ATMs, and award-winning online banking with approximately 34 million active accounts and nearly 22 million mobile active users. Bank of America is a global leader in wealth management, corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 3 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more than 35 countries. Bank of America Corporation stock (NYSE: BAC) is listed on the New York Stock Exchange.

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