Financial Advisor had a recent article in which they discussed a retirement success study conducted by Putnam. Quite logically, Putnam defined retirement success by being able to replace your income in retirement. They discovered three keys to retirement success:
- Working with a financial advisor
- Having access to an employer-sponsored retirement plan
- Being dedicated to personal savings
None of these things is particularly shocking, but taken together, they illustrate a pretty clear path to retirement success.
- Investors who work with a financial advisor are on track to replace 80 percent of their income in retirement, Putnam says. Those who do not are on track to replace 56 percent.
- Workers who are eligible for a workplace plan are on track to replace 73 percent of their income while those without access replace only 41 percent.
- The ability to replace income in retirement is not tied to income level but rather to savings level, Putnam says. Those families that save 10 percent or more of their income, no matter what the income level, are on track to replace 106 percent of their income in retirement, which underscores the importance of consistent savings, the study says.
I added the bold. It’s encouraging that retirement success is tied to savings level, not income level. Everyone has a chance to succeed in retirement if they are willing to save and invest wisely. It’s not just an opportunity restricted to top earners. Although having a retirement plan at work is very convenient, you can still save on your own.
It’s also interesting to me how much working with a financial advisor can increase the ability to replace income in retirement. Maybe advisors are helping clients invest more wisely, or maybe they are just nagging them to save more. Whatever the combination of factors, it’s clearly making a big difference. Given that the average income replacement level found in the study was 61%, working with an advisor moved clients from below average (56%) to well above average (80%) success.
This study, like pretty much every other study of retirement success, also shows that nothing trumps savings. After all, no amount of clever investment management can help you if you have no capital to work with. For investors, Savings is Job One.