ARLINGTON, Va., April 15, 2015—New LIMRA Secure Retirement Institute research finds that pre-retirees and retirees fall into three categories based on their emotional attitude to their savings.
LIMRA Secure Retirement Institute asked 2000 pre-retirees and retirees (ages 50 -75 with at least $100,000 in household assets) what income product features they deemed most important. Using cluster analysis based on their responses, the Institute was able to identify three distinct money mindsets:
- Guarantee Seekers – Want to know that their income won’t disappear. Have a floor of lifetime guaranteed income and would be interested in converting even more of their savings to a pension-like contractual guarantee. Want to spend money without the day-to-day worry of how long it has to last. Want the peace of mind of a certain outcome.
- Estate Planners –Financially savvy. Understand equity markets generally outperform risk-free fixed investments. Can withstand a little volatility to maximize the potential of investments. Trust their own investment decisions. Want to maintain personal control over investment decisions and to retain the flexibility to adjust income and spending as needs change over time.
- Asset Protectors – Have been saving money for a long time. Do not want to see savings account balance go down. Will live off the interest and dividends of savings, but uncomfortable invading principal. Don’t want to be poorer.
Understanding a client’s money mindset will help an advisor recommend an appropriate retirement income strategy that is ‘right’ for that person.
The study found that people in each of these categories can look very similar on paper. They often share the same demographic profile, wealth level and lifestyle ambitions. But because their attitudes toward money are so different, LIMRA Secure Retirement Institute found a distinct divergence in the income solutions they prefer.
“Guarantee Seekers” will want certainty and peace of mind and are not seeking maximum income potential, but rather a stable and predictable monthly income. According to the Institute’s research, this segment has the highest rate of ownership for deferred and immediate annuities (46 percent collectively). Guarantee Seekers are least likely to own individual stocks, mutual funds and corporate/municipal bonds.
The research shows “Estate Planners” will not be interested in converting savings to a guaranteed income stream. Investment growth and control are important to this segment. According to LIMRA Secure Retirement Institute research, Estate Planners had the highest ownership rate of individual stocks (69 percent), mutual funds (75 percent) and ETFs (19 percent).
“Asset Protectors” are reluctant to take risk and want guaranteed fixed rates of return without putting their principal at risk. This segment worries about running out of money in retirement and wants to hedge against unexpected future expense. Institute research indicates Asset Protectors have the highest rate of ownership of CDs (44 percent). Asset Protectors were most likely to own other conservative assets like annuities (31 percent), government bonds/Treasury notes (30 percent).
“The most effective retirement income strategy is actually a subjective assessment as much as it is an objective one,” said Judith Zaiken, corporate vice president and director LIMRA Secure Retirement Institute research. “A subjective assessment combined with a thorough look at the numbers can help an advisor develop a more effective retirement income strategy.”
What’s your Money Mindset? Take the Quiz here!