Advice needed on retirement income strategies, report finds

There’s an advice gap in retirement income planning among people who have recently entered this phase of their lives or those who are about to enter it, according to a recent report from Vanguard Investments Canada Inc.

The study, which was conducted to examine the decumulation and drawdown phase of retirement among recent retirees and pre-retirees, is based on surveys of households led by 55- to 75-year-olds in Canada, the U.S., the U.K., and Australia. The study found that although a majority of survey participants indicated they have gone through some income-planning process, the depth of personalized advice can vary.

Specifically, about two-thirds of individuals surveyed among recent retirees and pre-retirees said they rely on formal advice — a financial advisor, employer program or financial services institution — but a third of both groups receive only informal guidance or none at all.

These findings suggest that there may be less clarity about when to access pension plans, or little knowledge of how much is needed upon retirement, among a significant percentage of those who have either retired within the past 10 years or those who plan on retiring within the next decade.

Furthermore, only about a quarter of those who have planned their strategies for drawing income from their personal investments or pension plans felt comfortable doing so without help.

As such, retirement planners such as advisors can play a role in filling that gap by providing clear projections of a client’s retirement income and offering online educational resources for clients, the Vanguard report suggests.

Access to more formal advice is higher in Canada and the U.S. than the U.K. and Australia, with about 50% of Canadian pre-retirees and recent retirees surveyed saying they turn to multiple sources for retirement planning.

When survey participants were asked about the barriers they face to seeking formal advice, cost, lack of awareness or access and perceptions of trustworthiness were the most cited reasons. For example, in Canada, of those pre-retirees who were asked why they didn’t turn to an advisor, 22% cited lack of trust compared with 17% of recent retirees.

The report also found that not only do recent retirees have more trust in an advisor, but they also have a much brighter outlook of their financial situation than pre-retirees, despite holding similar assets.

Specifically, 65% of recently retired Canadians expressed a high degree of financial satisfaction compared with only 46% of pre-retirees. (For this study, 1,167 households in Canada were included in the sample.)

The study suggests that a person’s perception of financial security shifts upon retirement. Vanguard attributes this difference in attitudes to the anxiety pre-retirees may experience as they navigate the transition.

To close that gap, the Vanguard report suggests more formal planning in advance for generating retirement income can help reduce the level of uncertainty that pre-retirees contend with.

ORC International conducted 5,663 surveys between October and November 2015 with households that had a minimum of $50,000 in assets.

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