Conducted in three countries, Franklin Templeton Investments’ annual Retirement Income Strategies and Expectations (RISE) survey explores individuals’ attitudes and expectations about retirement as well as their progress—or lack thereof—in saving and investing for their future. Michael Doshier, vice president, retirement marketing, offers some highlights from the survey and examines how attitudes toward retirement differ in different countries. This year’s surveys revealed a disconnect between the concerns most people have about retirement and how many are taking action to actually alleviate those concerns. Many remain unsure about how much money they will need in retirement as well as how to generate income in retirement.
Individuals around the world may have different ideas about the ideal time to retire—and differing expectations about what makes for an idyllic retirement. Even in countries with social safety nets such as government pension plans, many people remain uncertain about how to achieve their retirement goals and dreams—and how to prepare for unexpected post-retirement expenses. Now in its fifth year in the United States,1 second year in the United Kingdom2 and third year in Canada,3 Franklin Templeton’s Retirement Income Strategies and Expectations (RISE) survey uncovers some surprising insights about retirement planning and perceptions. The survey includes younger generations as well as current retirees who offer wisdom about their pre-retirement presumptions and plans—and the realities they are now facing in their post-working years.
United States: Savings Shortfall
In the United States, the 2016 RISE survey revealed that fewer pre-retirees are saving for retirement than in prior years, with 41% of pre-retirees indicating that they are not yet saving.4 When examining key elements of retirement planning, the 2016 US RISE survey also revealed a significant disconnect between understanding and implementing various retirement strategies. For example, nearly all (94%) US respondents who have a workplace retirement plan funded through salary deductions indicated that their employer-sponsored plan was important to their overall retirement strategy. However, when all respondents were asked whether they know, with a high degree of confidence, how much of their current income would be replaced by income from a retirement plan at work, 38% did not know.
This uncertainty seems to have led to increased levels of stress and anxiety, with 70% of all US respondents reporting stress this year when thinking about retirement savings and investments, versus 67% in 2015.5 Of those respondents who reported experiencing significant stress when thinking about their retirement savings, 65% didn’t know how much of their retirement savings they currently withdraw/spend or expect to withdraw/spend on an annual basis in retirement. Similarly, 60% of those who were concerned about managing retirement income did not know how they would pay their medical expenses during retirement. When asked how concerned they are today versus 12 months ago about outliving assets or having to make major sacrifices to their retirement strategy, 52% of US respondents expressed concern today, compared with 43% who said they were concerned 12 months ago.
Fortunately, there are some strategies that can help reduce stress and uncertainty about retirement, and our 2016 US RISE survey revealed that uncertainty decreased dramatically among respondents who have a formal or completed retirement plan. In addition, professional advice appeared to have a positive impact on the retirement planning process. The majority of US respondents (60%) across all age groups considered a financial advisor important both to the planning process and in generating income during retirement. Millennials were most likely to reflect this attitude (69%). Nevertheless, less than a quarter of US respondents (23%) currently work with an advisor, and only 2% said they plan to start working with one in the next five years. Interestingly, 35% of Millennials expect their retirement will be better than the retirement of previous generations, but 57% have not started saving for retirement.
The 2016 US RISE survey underscored the importance of taking advantage of a range of retirement savings options; 67% of retirees advised pre-retirees to contribute as much as they can, either to their personal savings or workplace retirement plans. Retired respondents also emphasized the value of professional advice, with nearly one-third (30%) recommending that pre-retirees work with a qualified financial advisor to help achieve retirement goals.
“Given what looks to continue to be a low-interest-rate environment for some time in many countries, along with uncertainties about government safety nets, individuals may need to think more strategically about investing for retirement—and how to generate income after,” said Ed Perks, executive vice president, chief investment officer, Franklin Templeton Equity. “Taking a purely passive approach—or doing nothing at all—doesn’t seem to us like the most prudent path to a stress-free retirement outcome, and our [2016 US RISE] survey seems to confirm that. We believe working with an advisor can help not only alleviate retirement stress and anxiety but also can help one generate income in retirement to meet day-to-day and unexpected expenses.”
Canada: Many Lack Confidence about Retirement Income
Meanwhile, our 2016 Canada RISE survey revealed more pre-retirees in Canada were saving for retirement (70%) than those surveyed in the United States (59%). Among Canadian survey respondents aged 55 to 64, 60% have saved CD$250,000 or less for retirement.
Canadian retirees can receive government support through the Old Age Security (OAS) pensions as well as through the Canada Pension Plan (CPP), yet 48% of those surveyed did not know with a high degree of confidence how much of their current income will be replaced by their CPP or OAS benefits. And, 44% expressed concern about outliving their assets or having to make major sacrifices to their retirement plans. Many Canadians acknowledged their potential savings shortfall—31% of non-retirees reported that if something were to delay their retirement plans, it would most likely be not having saved enough.
While nearly all Canadians (92%) who plan to retire reported they are looking forward to retirement, 72% of all respondents said that thinking about their retirement savings and investments causes them stress/anxiety—which is similar to the percentage of individuals revealed in our 2016 US RISE survey. In Canada, 33% of those aged 18–54 were most concerned about running out of money, and 41% of those aged 55+ were most concerned about health and medical issues.
Many individuals in Canada also expressed concern about managing retirement income to meet expenses. While many individuals assume their expenses will drop in retirement, our 2016 Canada RISE survey revealed that expenses actually increased for 43% of current retirees. And, surprisingly, nearly one-quarter (23%) of 75+ year olds stated that their expenses had increased significantly.
“Engaging professional investment advice can help alleviate some of the stress and uncertainty surrounding the prospect of retirement,” said Toronto-based Matthew Williams, head of Defined Contribution and Retirement at Franklin Templeton Investments Corp. in Canada. “Creating a retirement plan can help Canadians gain confidence in their preparations for whatever type of retirement they envision.”
On the brighter side, a whopping 92% of Canadian respondents who had developed a written retirement income plan with an advisor were confident with it and 91% were happy with it. Meanwhile, 74% of retirees polled had this advice for younger generations: save early, safe often and save consistently.
United Kingdom: Pension Rule Changes Create Confusion
In the United Kingdom, many individuals also felt they weren’t saving or hadn’t saved enough for retirement. As one might expect, the majority of individuals expressing this concern had little-to-no savings, but interestingly, 25% of those with more than £250,000 in savings still felt they weren’t saving or hadn’t saved enough for retirement.
Two other unique themes emerged from the 2016 UK RISE survey. Continual changes to pension rules appeared to have an impact on attitudes toward retirement saving, as the vast majority of UK respondents reported they were still confused and disillusioned with their options. At the same time, individuals have become more open to the role of investments as part of their income post-retirement, and were also more accepting of risk.
Our 2016 UK RISE survey found there appears to be a lack of engagement with the current pension system, with just 13% of UK respondents believing the pension freedom reforms introduced in April 2015 have enhanced their ability to meet retirement goals. Last year, prior to the pension reforms coming into place, 16% expected the reforms to enhance their retirement savings. While more people felt they knew enough about these changes (50% this year vs. 42% last year6), 37% said the reforms would not help them achieve retirement goals. It’s perhaps unsurprising that 56% of UK respondents didn’t feel the government has done enough to educate the public on pension freedoms.
The RISE survey also highlighted continued uncertainty among respondents about what to do at retirement. Of those UK respondents with a pension plan, the survey uncovered that 24% were unsure what to do with their pension savings at retirement after paying off any debts, while 20% planned to take pension cash and bank it—or have already.
Half (50%) of UK respondents were concerned about the low-interest-rate environment and its impact on their retirement savings, though this was elevated among older people, (71% of respondents in the 65-to-74 age bracket). Meanwhile, about a third (30%) of UK respondents have kept or expect to keep a part of their pension savings invested in the stock market post-retirement, up from 25% in 2015. Respondents also seem to have become more accepting of the impact of volatility and risk in the stock market. While 41% still feel the stock market is “too risky” during retirement, this was down from 44% in 2015. Additionally, when asked about their reaction to a 5% decline in their retirement portfolio, just 39% said they would be concerned, down from 44% last year.
“Our second RISE survey has produced some interesting findings around people’s attitudes towards the role of investments in retirement saving. Encouragingly, there looks to be a greater understanding related to the part that market investments can play, particularly in providing an income stream in retirement,” said Colin Morton, portfolio manager, Franklin UK Equity Team. “The UK public also seem more accustomed to potential short-term volatility in their portfolios. The lower levels of concern around short-term fluctuations in portfolio values may also reflect a growing sense of realism amongst investors and the fact that they are starting to swallow the pill of lower returns in this low-interest-rate environment,” he added.
The Value of Advice
When looking across the three surveys, we would encourage individuals who haven’t started saving for retirement and who don’t have a plan not to put it off any longer. The confusion and stress that many people feel about retirement really emphasizes the importance of working with a professional to help develop a strategy before one’s working years have ended as well as after. The value is peace of mind—and perhaps, a more peaceful retirement.
Franklin Templeton does not provide legal or tax advice. The educational information provided above is general in nature and should not be construed as investment, legal or tax advice.
Any views expressed herein are our views, are current as of the date appearing herein, and are subject to change. Given the rapidly changing market environment, we disclaim responsibility for updating this material. Statements of fact come from sources considered reliable, but no representation is made as to their accuracy or completeness. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.
This information is intended for US residents only.
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1. Source: The 2016 US RISE survey was conducted online among a sample of 2,019 adults comprising 1,011 men and 1,008 women 18 years of age or older. The survey was administered between January 4 and 18, 2016, by ORC International’s Online CARAVAN®, which is not affiliated with Franklin Templeton Investments. Investors in the United States can visit www.franklintempleton.com/rise for more information.
2. Source: The 2016 UK RISE survey was conducted among a sample of 2,003 adults comprising 1,002 men and 1,001 women 18 years of age and older. The survey was administered between January 4 and 18, 2016, by ORC International’s Online CARAVAN®, which is not affiliated with Franklin Templeton Investments.
3. Source: The 2016 Canada RISE survey was conducted online among a sample of 2,006 adults comprising 1,001 men and 1,005 women 18 years of age or older. The survey was administered between January 4 and 18, 2016, by ORC International’s Online CARAVAN®, which is not affiliated with Franklin Templeton Investments.
4. Source: The 2016 US RISE survey was conducted online among a sample of 2,019 adults comprising 1,011 men and 1,008 women 18 years of age or older. The survey was administered between January 4 and 18, 2016, by ORC International’s Online CARAVAN®, which is not affiliated with Franklin Templeton Investments. Investors in the United States can visit www.franklintempleton.com/rise for more information.
5. Source: The 2015 US RISE survey was conducted online among a sample of 2,002 adults in the United States comprising 1,001 men and 1,001 women 18 years of age or older. The survey was administered between January 8 and 22, 2015, by ORC International’s Online CARAVAN®, which is not affiliated with Franklin Templeton Investments. Data is weighted to gender, age, geographic region, education and race. The custom-designed weighting program assigns a weighting factor to the data based on current population statistics from the US Census Bureau.
6. Source: The 2015 UK RISE survey was conducted among a sample of 2,004 adults in the United Kingdom comprising 1,002 men and 1,002 women 18 years of age and older. The survey was administered between January 8 and January 22, 2015, by ORC International’s Online CARAVAN®.