Most wealthy investors’ do not feel “old” until they are 80, a significant shift from their parent’s generation when “old” was perceived to be around age 60. This was reported in UBS’ latest Investor Watch which found that only 16% consider retiring as a sign of being “old”, and Americans define old as the loss of individual independence, marked by no longer living in your own home (71%) and driving your own car(67%).
Retirement seen as having three distinct phases
The report also found investors do not expect a direct break from work life into a leisurely retirement. Rather, 90% of working investors under the age of 65, or “pre-retirees,” believe they will experience three distinct phases of retirement over the course of multiple decades (the anticipated duration of each phase indicated in parentheses):
I. Transition (5-10 years): Reduced work hours, departure to start a new business or career, or increased volunteerism.
II. My Time (10-15 years): Focus on travel and leisure activities.
III. The Last Waltz (10-15 years): Slowing down with heightened focus on health issues and losing independence.
When asked what they would like to be doing at age 65, nearly half of investors indicated “traveling”, with 22% desiring to be working. A small portion wants to be spending more time on their hobbies (14%) or spending more time with family (12%). Only a third of investors expect to change homes when they retire.
Investors say that their key financial needs will change as they move through the three phases of retirement with focus on maintaining lifestyle in the first phase, transitioning to an emphasis on cash flow in the second, and finally a spotlight on healthcare in the third phase.
What was a concern from the report was that pre-retirees continue to underestimate the financial burden of a drawn out transition. Pre-retirees now anticipate only needing 58% of their previous annual income to fund “Phase I”, 63% to sustain “Phase II” and 56% to support “Phase III”. However, the financial services industry typically uses 75% to 80% of pre-retirement income as the benchmark for financial security.
Familial Financial Support Squeezing Investors
In terms of family support, the survey found that wealthy investors often play an active role in their adult children’s financial decision-making, as well as that of their parents. Sixty percent of investors indicated that they play the role of “sounding board” for their adult children when it comes to investment decisions, with only 10% playing a primary or joint role in decision-making. Conversely, one in three investors either make the decisions for their parents or are always or almost always consulted on key financial decisions – a number which increases as the parent(s) ages.
Additional highlights include:
- At 65, pre-retirees would rather globetrot: 1 in 2 investors ideally want to be traveling at age 65, as compared to the 22% of respondents who said they want to still be working in some capacity at that age.
- Economic outlook has declined in the last quarter: Optimism is down from 42% in July and 47% in April. Mid-term outlook (3-5 years) is more positive (49% optimistic and 24% pessimistic), but still down from July (56% optimistic). Long-term outlook (10+ years) is the most positive (56% optimistic, 18% pessimistic), but is down slightly from 60% optimistic in July. Investors continue to believe the U.S. economy is in fragile recovery mode (86% agree). Most investors expect the market will be volatile in the next 6 months (76%), but this is actually down from 81% in July.
- Investor confidence skyrocketed over the last year: Investors’ confidence in their own financial situation has increased from a year prior: 63% of respondents say they are very good or excellent about their financial situation now, compared to 44% who responded similarly in September 2012. HNW and affluent investors are evenly divided on their short-term economic outlook over the next year, with 36% indicating that they are optimistic and 37% responding that they are pessimistic. Investor optimism increase over the medium and long term, however fewer investors (24%) now anticipate the U.S. making progress on reducing the national debt over the next year than they did in July 2013 (30%).
- Rising real estate values are a bright spot in the economy: 1 in 2 investors indicated that they believe rising housing prices are having a positive impact on the economy, and almost 40% said that they are improving their personal financial situation. This is especially true for investors with outstanding mortgages (44%). The vast majority of investors (74%) expect real estate prices in their area to continue this upward trend over the next year, making them less likely to purchase real estate over that time period.
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