Affluence And Retirement: Is Billion The New Million?

What would you do if you had a million dollars? We’ve all been asked that question before, and I’m willing to bet part of your answer included “quit my job.” Given today’s economic climate, we might have to take a step back and wonder, is a million enough for retirement? Conventional wisdom dictates that high net-worth, affluent individuals, especially millionaires, should have more than enough to comfortably retire when and how they want to. But money isn’t everything, and that statement couldn’t be truer than in today’s bear market.

Cogent’s recent study of high net-worth investors* (HNWIs) reveals that even the affluent are shaken. However, there are distinct similarities and differences between individuals at the low, mid, and high levels of the affluence spectrum.

As a result of the market’s downturn, 20% of investors in the $1M+ asset class have become less confident that they will be able to retire when they want to. Investors in the $999-250K and <$250K asset classes are even less likely to be confident they will meet their retirement date.

When asked what actions they have taken in response to the current economy, a small portion of investors polled have delayed their expected retirement date, and moderately affluent individuals are 50% more likely to have done so than their lower and higher net-worth counterparts. Approximately one-quarter to one-third of HNWIs in all asset brackets indicated becoming more involved with investment decision-making and changing their investment allocation. Of the investors using an advisor, one-fifth have increased the frequency in which they call or meet with them.

A trend observed predominantly within the lower-net-worth investors is, the less assets they have, the more likely they are to not only borrow money from a retirement account but also stop contributing to an IRA, 401(k) or 403(b), in a bear market. The most dramatic discrepancies are seen between the lowest and moderate affluent investors; they are significantly more likely to cease contributions than the millionaires, respectively.

Weighing equally heavy on all HNW investors’ minds are concerns regarding the market’s performance during retirement and maintaining their current standard of living. Thirty-four percent of non-retired millionaires are troubled by the possibility of outliving their assets, and as you can imagine the mid- and lowest-asset classes are even more distressed (47% and 45%, respectively). Covering the costs of heathcare is also a universal concern, but surprisingly more so for those in the middle of the affluence spectrum.

Individuals in the million-plus category are particularly concerned with inflation and the impact of taxes on their income. To a lesser degree, they are also worried about leaving a legacy for future generations. For non-millionaires, the availability of social security, or lack thereof, and financing their child(ren)’s education are significantly more worrisome than the aforementioned concerns of the millionaires.

COGENT THOUGHT
A million dollars used to be the Holy Grail of retirement, a one-way ticket to Easy Street. Unfortunately, given today’s current economic climate, a million–or anything close to it–just doesn’t elicit the same sense of security. What will it take? How much is enough?  We’d love to hear your thoughts!

* This data is derived froma survey of a nationally representative sample of high net-worth U.S. investors having a minimum of $100K in investable assets (real estate excluded). For more information contact Cogent Research, info@cogentresearch.com, www.cogentresearch.com.