Wealthy Retirees Concerned About Legacy Planning

Effectively managing finances in retirement is a challenge faced by many Americans. A study from consumer investment and retirement insights service Hearts and Wallets dove into how high net worth Americans face this conundrum. In the course of their research, Hearts and Wallets concluded that even wealthy retirees face significant obstacles in managing their retirement saving and spending as it relates to their personal goals. This suggests a window of opportunity for financial professionals who can effectively bridge the gap between setting the right targets in retirement and putting those plans in action.


Narrow focus, wide reach

As part of the study, titled “Funding Life After Work,” Hearts and Wallets focused on a specific demographic: the approximately 5.2 million households between the ages of 53 and 70 who possess between $500,000 and $5 million in investable assets. As a group, this demographic controls around $10 trillion in assets, according to the study. Hearts and Wallets further discovered that 82 percent of these households can be broken into three distinct groups: households with no children (1.8 million), parents who plan to fully exhaust their retirement savings (1 million), and parents who plan to leave a legacy for their children (1.5 million).

In the course of surveying members of each of these specific groups, Hearts and Wallets came to some surprising conclusions. For one, it appeared spending patterns for each of these groups were not fine-tuned to match clients’ goals for their retirement.

“Surprisingly, parents who plan to leave a legacy aren’t necessarily more generous than those who plan to spend it all,” Laura Varas, Hearts & Wallets co-founder and principal, said. “They may plan to leave only a couple $100,000 or so, but having that goal reins in spending and guides retirement funding decisions, sometimes to their detriment. They could afford to be a little less frugal and risk averse if they had sources of advice or solutions that acknowledged this fear.”

Retirement spending hard to estimate

Essentially, the Hearts and Wallets study found that wealthy retirees were underestimating the longevity of their investments, and overestimating the risk involved in them, leading to a potentially significant loss of income. Naturally, much of this anxiety comes from parents, who worry about juggling concerns regarding inheritance with their own financial needs. However, nonparents were found to express worries about retirement finances as well. The Hearts and Wallets survey found that even those without children expressed concerns that they may run out of savings in retirement, or struggle to pay for a high-quality caretaker in the absence of children who traditionally take that role.

Hearts and Wallets used this data to demonstrate the importance of finding the right financial advisor. According to a 2014 report from the Society of Actuaries, only around 44 percent of retirees have a financial advisor in the first place. Taking steps to find the right financial professional who can thoroughly explain complex strategies like retirement fund drawdowns is vital for high net worth clients who want to see their retirement plans through to the end.

The Hearts and Wallets study also unearthed another surprising takeaway: High net worth clients are skeptical of leaving their retirement investments in the hands of their employers as well. While some told researchers they simply want to cut ties with their employer after retirement, others report the desire to annuitize their 401(k) returns or other savings. Around 53 percent of respondents said they would not leave money in their employers accounts after leaving for retirement. Still, many said they were unaware of how to effectively utilize these funds without going under or over their final target. This presents another window of opportunity for financial professionals who specialize in retirement planning.

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