The 50+ generation, considered “the wealthiest generation ever,” is approaching and entering retirement in the next 10 to 15 years. Collectively, they have an enormous amount of accumulated assets. As retirement nears, many of them are seeking a strategy for financing their golden years by optimizing investment earnings and restructuring assets.
The task is significant. They have to decide how they can decumulate assets after entering retirement. They also need to generate an income stream that provides them with an adequate overall retirement income. And they have to do both by making financial decisions that will have profound consequences on their retired life.
The structure of retirement income for all individuals has begun to change as a result of pension reforms in western Europe, and individuals now need to take more responsibility for their retirement income. Wealthy retirees and soon-to-be retirees can share their experiences with retirement planning; yet the actual need for detailed planning depends on the existing pension system within a country and the initiated reforms.
A study conducted by Allianz Asset Management in cooperation with market research firm TNS surveyed the retirement approach of wealthier people aged 50-70. Seven European countries were examined: Austria, France, Germany, Italy, the Netherlands, Switzerland and the United Kingdom.
, focused on the wealthy, who have already been confronted with low replacement rates of public pensions compared with their current income and living standards. As a result, they have taken additional steps to reach a retirement income that allows them to maintain their living standard. This group is likely to have more experience and ability to master retirement strategy and investment decisions. Preparing for Retirement – Financial strategies of the affluent 50+ generation in European countries
Nevertheless, decisions about retirement finance are particularly difficult with respect to both the time horizon and complexity: people have to know how financial markets and inflation will develop in the future. With respect to inflation, the results underline the uncertainty.
AUSTRIANS LEAST CONCERNED ABOUT INFLATION
In all countries except Austria the majority of respondents (56%) expressed that inflation is the main financial risk in retirement. In Germany and the United Kingdom, this group is even larger – 60% and 65% respectively. Uncertainty also surrounds unforeseen expenses, particularly in Austria. Only a small number are afraid of outliving their assets.
The last decade has shown the difficulties in assessing the various investment risks on financial markets. With pension reform processes also forcing people to adapt, it is not surprising that most European respondents are uncertain if they can maintain their living standard. Only the Swiss and Dutch respondents are optimistic, as they can build on a broad mandatory pension system.
Indeed, the majority of Swiss interviewees (81%) are very satisfied with their retirement planning, with only a minority admitting to mistakes. The least satisfied are the French and Italians (46% and 54% respectively). Sharp pension cuts in Italy and pending reforms in France have led to increased uncertainty. While the French are not certain they made mistakes, 27% of Italians believe they made errors.
TOO LITTLE OR TOO LATE
Across Europe, inflation was recognized as the main threat to retirement wealth. © 2Agenten
The main mistakes people in all countries think they made is having saved too late or invested too riskily. Having chosen the wrong products tops the error list in Austria, while Britons mostly believe they have not saved enough.
In all countries, retirement planning and saving is not clearly assessed by retirement products. In fact, people hold only a small amount (on average 30%) of their assets in retirement accounts. However, although savings and investments are not in retirement accounts, many people want to use them for retirement preparation.
With the exception of Italy, where only 30% of assets (not in retirement accounts) are used for retirement, 40-50% of assets are earmarked for retirement in the other countries surveyed. This reveals that retirement and investment decisions are closely interlinked. The main challenge for product providers is this broad assessment and the demands wealthier (retirement) investors require in products: good performance and comprehensibility.
When planning for retirement, 42% of the Dutch and 48% of Britons rely on themselves. They prefer to make decisions without assistance. Respondents in other countries use financial experts only for specialized needs. This attitude puts most of them at a distance to financial services providers. The fact that this group largely feels well-informed and uses a wide range of information sources (with Internet searches ranking high on the list) further underlines their demanding, self-reliant character.