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Retirees suffer from crisis in confidence

The recession has had a substantial effect on investors in many ways

The recession has had a substantial effect on investors in many ways. As people watched their nest eggs lose value or stagnate, the retirement plans of thousands were thrown into limbo.

But beyond the financial toll has been the emotional impact that the downturn has taken on investors, especially those who are approaching or who are in their first year of retirement. It is important that financial professionals recognize and try to understand the psychological impact that the recession has had on our clients, including how it has altered their thinking about retirement.

Ameriprise Financial Inc. recently surveyed about 2,000 Americans 40 to 75.

Called the “New Retirement Mindscape II” study, it revealed that 78% of retirees surveyed reported feeling “happy” about retirement. Although this figure may not seem overly worrisome, it is a significant drop from 2005, when 87% in a similar survey expressed the same sentiment.

Likewise, the number of people approaching retirement who reported feeling “hopeful” dropped to 73%, from 78%.

More alarming is the decline in positive feelings and confidence during people’s first year of retirement.

The number of new retirees who reported that they are “living their dream” dropped to 45%, from 68% in 2005. Likewise, 57% in the most recent survey said that their retirement has “worked out the way they planned,” compared with 77% in 2005.

What can we do to help investors regain confidence in their ability to retire?

Let’s start by recognizing and acknowledging investors’ fears. Although their concerns are most likely valid, it is important to examine whether the situation is really as bleak as it appears.

Drops in 401(k) or individual retirement account balances can be unsettling, but we need to put them in context.

What could the balance we see today be in five, 10 or 15 years? Combined with other investments and sources of income, is it still enough for them to live the retirement they are planning?

If so, there is obviously a light at the end of this tunnel. If not, now is a better time than any to do something about it.

This may mean that some retirees return to work part time or withdraw less money than originally planned. However, simply knowing the options relieves a significant amount of anxiety for most people.

Second, if your clients don’t already have a written financial plan, ask them to consider one. The Ameriprise study showed that consumers who have a planning relationship are much more optimistic about retirement than those without one.

In fact, 72% of retirees with a plan said that their retirement has worked out the way they planned, compared with just 49% without a plan. They also reported feeling significantly happier and more enthusiastic about retirement.

This may be because they have also taken more steps to prepare, both financially and emotionally, or because they have a more realistic view of their financial situation. Again, it comes down to taking an objective and comprehensive view of their circumstances, instead of just looking at numbers on an account statement.

Finally, recognize the recession for what it was: a major wake-up call for many. The same economic downturn that has rocked consumers’ confidence has also ushered in a renewed sense of financial responsibility.

In fact, the study showed that 90% of respondents who are approaching retirement are setting aside money in an employer-sponsored plan or their own savings and investments. Increasing numbers are also working with financial professionals and developing a written plan.

Is all this extra responsibility pain-free? Does it give people, including the investors we work with, an immediate sense of gratification?

No. But doing the right thing seldom does.

In the long run, however, extra preparation will likely pay off in the form of a more fulfilling and confident retirement. And if you ask me, that is a good goal for all of us.

Craig Brimhall is the vice president of retirement wealth strategies at Ameriprise Financial Inc.

For archived columns, go to InvestmentNews.com/retirementwatch.