Advisors Need to Help Clients Overcome Unrealistic Views of Retirement Income

News outlets love to report on the dire retirement situation facing Americans, and it’s true that many people are extremely unprepared for retirement. Generally, people who have little to no savings are the focus of news reports about the state of retirement income savings in this country, but that’s just one part of the equation. There are plenty of other people who grossly underestimate the actual cost of retirement despite having put some money away. Most problematically, this confusion affects people throughout the income spectrum, which means financial professionals will need to seriously increase educational efforts to get consumers on track.

Overly optimistic

According to the BlackRock Investor Pulse survey, about half of Americans nearing retirement feel they are on track for a comfortable retirement. That positivity is rooted in their savings, which total more than $136,000 on average. Unfortunately, that’s nowhere near enough to support a comfortable retirement. These consumers hope to have an annual income of more than $45,000 dollars once they leave the workforce. At their current level of savings, however, they’ll be able to bring in just under $10,000 a year. That’s simply not enough to maintain their current standard of living, and these consumers will be in for quite a shock when they realize the true cost of retirement.

The problem exists for people who have more money as well. Among the high net worth people BlackRock surveyed, those nearing retirement had put away $567,000. That would put the average person closer to their retirement income goals, but high net worth individuals expect more retirement income. On average, the high net worth consumers said they wanted to use $59,600 per year in retirement. Unfortunately, their current level of savings will give them just $37,800 annually.

A frank conversation on retirement income

To help clients see the potential shortfall between their current savings and the retirement they want, financial professionals should illustrate how income changes in retirement. Many consumers assume that social security will pick up some of the slack in retirement. While it’s true they may get some income from this program, most high net worth individuals’ 401(k) savings and social security benefits replace less than half of their pre-retirement income.

Given the findings from BlackRock’s survey, it’s clear consumers don’t fully understand how much they’ll need to retire comfortably. A policy review that illustrates the current shortfalls in a person’s retirement plan and how life insurance can help will improve clients prospects for a happy retirement.

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