Study: Objective Advise Key to Boosting Retirement Income


If you're looking for a sure-fire way to significantly boost how much income you've got to tap into during retirement, try hiring an advisor.

At least that's a key takeaway from a new research report, "Scoring the Progress of Retirement Savers." Based on a nationwide survey of working adults (i.e., they aren't retired yet), it estimates that Americans are on-track to replace 64% of their current income once they leave the workforce.

That's alarmingly low. Many retirement experts point to a need to build nest egg savings surpassing at least 80% to reach expectations of living comfortable lifestyles after leaving the workforce.

"We believe this measure (monthly income while in retirement) reflects the purpose of retirement plans and offers a true measure of retirement preparation," notes the study, which is authored by the Empower Institute, an arm of Great-West Life & Annuity Insurance Company.

To come up with an estimated monthly income replacement percentage, the institute's researchers looked at trends involving: projected Social Security benefits of adults between ages 18 and 65; defined benefit and defined contribution retirement asset growth rates; individual savings levels and levels of home equity as well as business ownership.

Researchers at the institute estimate that those with a formal investment plan are able to achieve a median projected income replacement rate of 99%. At the same time, those without such professional support are likely to only reach a replacement level of less than 60%, the report adds.

"People want professional advice, and those who have an advisor are more likely to be on track to create adequate retirement income—by a wide margin," the authors note.

Of course, savings rates are seen by researchers as a foundation for individuals to meet their long-term financial needs. "The fact that contribution rates make a difference is obvious," the report says, "but the degree of impact may be surprising."

Those who contribute 3% of their pay to a retirement savings account, the study estimates, generated a median lifetime income replacement percentage of less than 60%. By contrast, the institute's researchers note that savers who sock away 10% or more can potentially reach 100% replacement rates, depending on individual circumstances and requirements.

Polling by the institute shows a high correlation between investors with greater savings and those expressing more confidence in achieving their retirement goals. Along those lines, the report notes that advice from a financial professional is seen by an overwhelming majority of retirement plan participants surveyed (more than 80%) as attractive in setting long-term investment strategies.

Since it comes from a silo within the financial conglomerate that is Great-West -- which among other things provides services to the retirement planning marketplace -- these findings are heavily skewed to providing insight to plan sponsors trying to bump up contribution rates.

Still, such research is the latest evidence that even experienced index-minded investors can benefit from objective and independent support. (See graph below.)

As I've experienced personally, establishing a professional relationship with an experienced and evidence focused advisor -- as opposed to those who focus their recommendations on market speculation -- is a critical part of investment planning.

It's arguably even more important for women in the workforce. An interesting take highlighted in the institute's report is that 401(k) contribution rates by female participants are notably lower than their male counterparts. "We believe these differences point to a need for more targeted support for women in the workplace when it comes to retirement planning and saving," the study's authors suggest.