Survey reveals the rising importance of financial planning at retirement

The Pew Research Center estimates that 10,000 baby boomers are expected to turn age 65 each day until 2030. Unlike the saving phase of retirement, the spending phase is more complex and requires the coordination of many key decisions such as Social Security, Medicare, tax minimization, and legacy planning, as well as hedging against inflation, market, and longevity risk. As the narrative shifts from “How much do I need to retire?” to “How can I do better with what I have?,” most people don’t know where or how to start.

It is therefore not surprising that among the respondents in our 2023 T. Rowe Price Retirement Savings and Spending Study, 64% of baby boomers reported moderate to high levels of stress about their retirement savings. When preparing for retirement, individuals may benefit from educational resources and digital experiences to help them draft a formal plan that outlines expected expenses, income, and asset management strategies. Additionally, financial advisors are well positioned to offer support in developing a comprehensive retirement strategy.

Creating a formal written plan for retirement has shown some crucial benefits for preretirees, including boosting their confidence and excitement about retirement. The majority of our preretiree survey respondents were either in the process of forming a retirement plan or thinking about it. For preretirees who were within five years of retirement and for retirees in the five years after their retirement date, data showed a meaningful increase in formal retirement planning, including seeking help from a financial advisor (Fig. 1).

Preretirees may find value in a range of services that will help them plan for retirement. These can include specialized education to help with the withdrawal and income phase or with key decisions such as when to collect Social Security. A formal retirement plan may include an understanding of retirement goals; an investment strategy that considers different accounts across the household, such as taxable, tax‑deferred, and Roth; and how to spend down these assets in a tax‑efficient manner. Additionally, past academic research has shown that an actively managed retirement plan that looks across a household to generate income can add up to seven more years of savings longevity.¹ Our survey shows that having a formal retirement plan improves investors’ confidence about their retirement outlook (Fig. 2).

Among preretirees, awareness is low when considering investment products that offer packaged solutions designed to support investors’ retirement income needs. In our study, 35% to 56% of preretirees reported that their understanding of investments, such as managed accounts, fixed income products, target date, and managed payout funds, were not very good or not good at all. This limited level of knowledge also applied to preretirees working with an advisor.

In addition, 65% of preretirees do not know how much can be withdrawn from their retirement savings (Fig. 3). Even estimates from knowledgeable preretirees may not be accurate. This is a problem, as overspending could deplete retirement assets early, while underspending could impede financial satisfaction.²

Financial advisors can help investors make the most of the assets in their various accounts and sequence withdrawals in a tax‑efficient manner while coordinating when to claim Social Security benefits. Advisors can also help retirees plan for health care needs, the needs of a surviving spouse, and how retirees might want their assets distributed to their heirs. In particular, financial plans that include detailed personalized and actionable guidance that incorporate the household’s retirement accounts as well as coordinate both investment and non‑investment decisions a retiree faces can be very beneficial.

Given the number of complex decisions facing retirees as they seek to maintain an income stream from their savings, the need for financial planning and related guidance may seem obvious. Similarly, individuals with a plan are clearly less stressed and more confident about their future. The results of our survey imply the immense value of financial advisors and digital planning tools for investors, as well as educational content, to provide retirees a greater peace of mind.