Most wealthy investors do not feel "old" until they are 80, a significant shift from their parent's generation when "old" was perceived to be around age 60, according to UBS Wealth Management’s latest Investor Watch report.
The report found that only 16 per cent consider retiring as a sign of being "old", and Americans define old as the loss of individual independence, marked by no longer living in your own home (71 per cent) and driving your own car (67 per cent).
Investor Watch is a quarterly publication analysing investor sentiment and behaviour, designed to provide a window into investors’ current, core, and often shifting priorities.
"People do not see retirement as a sign of being old, as it was for their parents," says Emily Pachuta, head of investor insights, UBS Wealth Management Americas. "What we’re hearing from people is that age is nothing more than a number and the age when people feel old has gone way up."
The UBS Investor Watch report found investors do not expect a direct break from work life into a leisurely retirement. Rather, 90 per cent of working investors under the age of 65, or “pre-retirees,” believe they will experience three distinct phases of retirement over the course of multiple decades:
I. Transition (five-10 years): Reduced work hours, departure to start a new business or career, or increased volunteerism.
II. My Time (10-15 years): Focus on travel and leisure activities.
III. The Last Waltz (10-15 years): Slowing down with heightened focus on health issues and losing independence.
"What investors are telling us is that retirement is one word, but it is not one phase," Pachuta says. "People now see retirement as being one third of their expected life, and it is marked by distinct phases each with different wants and needs."
When asked what they would like to be doing at age 65, nearly half of investors indicated "traveling", with 22 per cent desiring to be working. A small portion wants to be spending more time on their hobbies (14 per cent) or spending more time with family (12 per cent). Only a third of investors expect to change homes when they retire.
Investors say that their key financial needs will change as they move through the three phases of retirement with focus on maintaining lifestyle in the first phase, transitioning to an emphasis on cash flow in the second, and finally a spotlight on healthcare in the third phase.
Investor Watch found that pre-retirees continue to underestimate the financial burden of a drawn out transition. Pre-retirees now anticipate only needing 58 per cent of their previous annual income to fund "Phase I", 63 per cent to sustain "Phase II" and 56 per cent to support "Phase III". However, the financial services industry typically uses 75 per cent to 80 per cent of pre-retirement income as the benchmark for financial security.
The survey also found that wealthy investors often play an active role in their adult children’s financial decision-making, as well as that of their parents. Sixty per cent of investors indicated that they play the role of “sounding board” for their adult children when it comes to investment decisions, with only 10 per cent playing a primary or joint role in decision-making. Conversely, one-third of investors either make the decisions for their parents or are always or almost always consulted on key financial decisions – a number which increases as the parent(s) ages. An earlier issue of Investor Watch found that four out of five investors were providing some direct financial support to adult children.
“ At the same time, adult children are delaying maturity, living at home longer and relying on their parents for financial advice and support well into adulthood, indicating to us that there is much more of a sliding scale to the age at which financial obligations lessen than we have previously encountered,” says Pachuta.