New research suggests that one of the best actionable steps a person can take toward a secure retirement is creating a formal written financial plan.
Among the benefits of having a plan is that it helps keep retirement savers on track with their retirement goals and leads to greater retirement confidence, according to the research by LIMRA, which is based on data on retirement investors ages 40-75 with at least $100,000 in investible assets.
In fact, 87% of investors with a formal written retirement plan and 70% of investors with an informal retirement plan report feeling confident in their ability to live the retirement lifestyle they want.
However, LIMRA finds that just 1 in 5 retirees and non-retired workers have developed a formal written retirement plan.
Additionally, formal retirement plans increase the probability of completing key retirement planning activities, such as determining one’s income in retirement, calculating the total assets and investments available, and estimating the years those assets and investments will last.
Consider that 7 in 10 of those with a formal retirement plan have determined what their income will be in retirement (70%) and calculated the amount of assets and investments they will have available to spend in retirement (71%), compared to just 37% and 31%, respectively, for those without a plan.
Similarly, 67% of those with a formal retirement plan have estimated how many years their assets and investments will last in retirement, compared to just 25% without a plan.
These findings are based on responses by 2,831 retirees and 1,669 non-retired workers.
Top Retirement Concerns
When asked about their top retirement concerns, 4 in 10 retirees listed public policy around Social Security and Medicare benefits, while non-retired workers cited inflation risk (51%) and tax increases (43%). This data is from LIMRA’s 2023 Retirement Investors Survey, based on the responses of 4,500 investors.
Not surprisingly, investors who report having lower household investable assets, lower knowledge of financial products, or do not have a formal written plan are more likely to have these concerns, LIMRA notes. On average, female investors tend to have more retirement concerns than male investors.
Lifetime Income
LIMRA further reports that investors’ willingness to annuitize has increased, suggesting that there’s a positive relationship between formal retirement planning and owning annuity products.
In this case, the researchers found that 36% of investors who created a formal retirement plan own one or more annuities, compared with 27% of investors with informal plans and just 16% of investors without a formal retirement plan.
Of investors with formal plans, 70% indicated that they purchased their annuities because of their plan—perhaps in response to their “heightened awareness” of the need for guaranteed income. “Through the planning process, investors are more likely to discover that they will need a way to systematically withdraw from their retirement accounts as they have a clearer picture of their retirement situation,” the researchers noted.
Notably, LIMRA’s data further shows that the proportion of workers who feel confident that their guaranteed income sources will cover their basic living expenses in retirement has fallen in four of the last six years. This has coincided with an increase in investors’ willingness to convert assets into lifetime-guaranteed income, which has increased 14 percentage points from 38% in 2017 to 52% in 2023.
