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Welcome to today's episode. I'm Brian Hodgins, head of research at LEMRA, and I'm joined by David Blanchett, head of retirement research at Prudential. Welcome, David. Good to be here. David is a leading expert on retirement readiness, lifetime income strategies, and how consumers think about financial security as they approach and live in retirement. He's also a fellow at the LIMRA Retirement Income Institute.
Today, David and I are gonna talk about, a recent study that Prudential did called the twenty twenty five Global Retirement Pulse Survey. This was Prudential's global look at retirement attitudes among mass affluent adults across the US, Brazil, Mexico, and Japan. This year's research uncovers what Prudential calls the confidence paradox. I'm looking forward to understanding what that means, David.
I think, you know, a majority of people feel confident that they'll cover essential retirement costs, yet far fewer have taken steps, to actually get there. And I think the research is gonna start is gonna look into, you know, what is it like working with a financial adviser, creating a written plan, thinking about with withdrawal strategies. So we'll explore what that means for consumers and the broader retirement landscape.
And again, I'm looking forward to hearing some of the findings. So, David, why don't we start there? Why don't we begin with sort of the overview of the survey? What were the core findings?
You know, why did you call it the confidence paradox? What does that really mean about people's retirement preparedness? What does that mean to you? What did that study say?
Sure. So taking a step back, Prudential has been doing the poll survey going on twenty years now. Lots of different surveys cover different topics over the period. And this survey was a bit different. This survey focused on four different countries, as you alluded to, US, Mexico, Japan, and Brazil.
And it also focused on the mass affluent. And we define mass affluent as having a hundred thousand dollars or more in total financial assets either in the US or the comparable in different countries. So, you know, I mean, a few things at a high level. One, this isn't all Americans.
It's Americans who have at least something safe for retirement, but it also does provide kind of a global view to see how themes might be different in the US versus other countries. And the overall narrative was actually very consistent, this idea of the confidence paradox. And, you know, why do we call it a confidence paradox? Well, I think that the one thing that was kind of fascinating about the results is that people are really excited about, confident about, you know, like looking forward to retirement. They they feel good about retirement. The the the paradox part though is that is that a lot of them don't have help.
Right? And again, like, isn't the average American. These are folks that have some savings. You know, a lot of them don't have a financial plan.
It's not clear how they know how much they're gonna need. And so I think that that, you know, the overall results are one that suggests that people are are optimistic, but I think that it does also imply that there's this need for help to help make sure that they are that they can actually fulfill this confidence about retirement.
Yeah. So, you know, when you think about covering retirement expenses, essentially, we talk a lot about essential retirement expenses. You know, what is it that when you think about the confidence that they have, that they're obviously saying that they're they're they think they're gonna be ready, to cover those essential expenses. Is it that, you know, the the study said, like, they don't have a written plan in many cases, and is the planning aspect of it really a key component to trying to build up that preparedness, you know, or is it more around the withdrawal strategies? I mean, how does it how do they think about it in terms of actual action steps?
Sure. So, you know, first, some numbers. Right? You know, we found that that ninety percent of consumers feel like they have what they need to cover essential expenses.
Right? But only thirty two percent actually have a written plan. And so I think that, you know, maybe a step back is that a lot of people have a lot of faith in things like social security, right, or other forms of guaranteed or protected lifetime income to provide that kind of base level of expenses. But it's also not, again, clear to us, like like, how are so many folks so confident?
Right? So I've done, you know, lots of research over time thinking about, you know, what percentage of someone's retirement goal is essential or flexible and all that. And I think that for, you know, a lot of these individuals, they still need quite a bit, say, for retirement to to have that level of certainty around accomplishing their ascent the the their essential expenses. And I think that that, you know, there are gonna be some trade offs in the future in terms of balancing, like, needs and wants.
But to me, it just it just speaks to this need that, you know, like people need to to talk to someone about their plan to make sure that they are as on track as they think they are. Yeah. Because I think I think that's an issue for me here is just that is this that, you know, like, I I we didn't ask enough questions to, like, truly test. Like, are these people really gonna be okay when they retire?
But evidence would suggest that a lot of these folks are gonna have to make some changes because most Americans don't have what they need to kind of fully replace their income when they retire.
In every in the the role of an adviser in that equation. Right? You know, them left to their own to try to make those decisions, I I think, reduces the confidence over time. Right? You gotta be are you suggesting they gotta be thinking about working with a financial professional?
Yeah. I mean, so, you know, again, like, doesn't have to have an adviser. Right? So I've been you know, I did this research, I don't know, don't know, fifteen years ago at Morningstar.
I talked about this idea of gamma at the time. It was quantifying the role of an advisor. Right? And I don't think that every American needs to have an advisor all the time, but I also believe that more of Americans need to have a financial advisor.
Right? I think that the percentage of Americans that have advisors vary based upon the survey, But you know, retirement is incredibly complicated. You've got to make all these really tough decisions in terms of when you retire, when you claim social security, how do you invest your portfolio, how much can you spend. I think that it's really hard for people to do that on their own even if they're leveraging whatever today's most famous AI tool is.
So to me, the key is is that is that you need to talk to someone to objectively give you guidance on how you're doing, and I think, like, the best place to get that today is an adviser.
Yeah. There's been a lot of talk lately around, you know, some of these impacts on retirement planning, you know, financial impacts. We think about inflation. Inflation's been around.
It's been part of the per you know, retirement planning preparedness equation for a long time. We've we've seen a longer term trend of, you know, around two percent on inflation. But, certainly, if you've been reti if you were thinking about retiring or in retirement in the last few years, that that number's increased pretty, pretty significantly. Health care costs.
Right? That's been a big deal. We think a lot about that longevity.
These are all sort of major factors in the planning process.
You know, did the what did the studies share, if anything, around sort of how mass affluent consumers are looking at those things, you know, the retirement assumptions in general?
Are there any things that they're overlooking that that came out?
It's hard to say what people are are are overlooking because there are just so many different risks to consider when it comes to retirement. Right? You mentioned inflation risk, longevity risk, health care risk. There's all these kind of somewhat unique idiosyncratic risks that we have to worry about and manage when we get to retirement.
And I and honestly, like, it kind of worries me. Right? Because we've got we've got an increasing portion of our population who is increasingly responsible for making these incredibly complex decisions. Right?
And I think that, you know, like, one way to kind of help make better choices is to get a financial adviser.
Another way to do that would be to, you know, get back to the age of defined benefit plans. And I I don't think we're gonna get there. Just to be clear, like, don't I don't think that defined make a ton of sense for employers, but you can, like, DBIs your savings via lifetime income. And so I think that, you know, people that want an easy button on a lot of these risks and a lot of these tough decisions, you know, allocating to lifetime income, whether that be delinquent, claiming social security, or buying a left income annuity, are ways to kind of radically simplify and manage a lot of these risks.
Do you think that people think or, you know, the discussions, you know, if they're working with an adviser around longevity, I I I think about, you know, we we see some of this impacts that AI is having right now. We think about, you know, some of the things that you read around. Is it gonna, you know, improve health care in such a way, you know, start to solve for diseases that, know, we don't we haven't solved for today. Maybe, you know, you know, a much healthier lifestyle in retirement, preretirement.
Okay. If that starts to bend the the longevity curve, do you think people are even aware of it? Do you think people are thinking about it that way in terms of the planning?
I don't know that they are. Right? I think that, you know, we have things today like GLP ones that that could who knows? You know, now there's a there's pill forms that could have a radical impact long term on longevity.
You could have, to your point, AI, other innovations in in health care or biotech that that transform longevity. And to me, you know, one thing that I like to point out is that is that I'm not I'm not as concerned about kind of like the modal or the average increase. It's the variance. Right?
I think that I think that the probability of someone living to age a hundred and five, hundred and ten, it's it's increasing from effectively zero percent to say five or ten percent. And all of a sudden, if you know that your retirement could last forty or fifty years, that's really really tough. And I I think I think that's the future. I don't think that that necessarily all Americans will all live into their hundreds, but as we see more people doing so, it really changes the math around, you know, if you work for thirty or forty years, but then you live for thirty or forty years, how do you plan that out in terms of not only your activities, but also just financially?
So I think that there's a lot that could change in the future, and it definitely all points to making retirement even more complicated.
Well, know the survey touched on withdrawal strategies.
In your view, I know you've studied this a lot. Why are withdrawal strategies so important? And were there any sort of common pitfalls that you saw in the results there that people think about when they're planning their spend down of their assets?
Yeah. I mean, withdrawal strategies are kind of are kind of this kind of central concept behind defined contribution savings. Right? So people people tend to when they retire, they roll their money from a defined contribution like a four zero one k into an IRA, but people don't tend to spend it.
Right? I think that, like, I so it's kind of fascinating. I've done I've done research on withdrawal strategies for, like, for, like, decades. Right?
Like, how do you often withdraw money from portfolio, whatever? People do not withdraw money from their portfolios. Right? If you look at withdrawal behavior among Americans, like, it's it's objectively terrible.
Like and I mean, I understand that there's like this nice this nice benefit of having a pool of money that you can rely upon, but like people don't tend to get in there until like RMDs kick in, and that's just later and later and later. I think that, like, one area that an adviser can be very valuable is effectively communicating to someone that it's okay to spend this this money. Right? I think that that we need to think about how to get people to enjoy their savings because, like like, savings are are are supposed to be deferred consumption.
Right? You didn't go on that vacation. You didn't do something when you were younger, and and you can you can not do it when you're older. But I think that, like, again, like helping someone understand how they can spend, that might be just as valuable as kind of mapping out some kind of highly exotic withdrawal strategy to help someone figure out how to spend.
Yeah. That's good. Yeah. I agree with that.
You know, going back towards, yeah, I was thinking about at the beginning, you had mentioned this is a global study. I'm interested, you know, you went across US, Mexico, Brazil, and Japan. Differences between countries in terms of, you know, retirement planning behavior, expectations?
What were what were some of those?
So, you know, the the one theme was that, like, confidence abounds. Right? So, again, like, eighty seven percent of respondents thought that they were gonna cover their central expenses. And I mean like just to give you some sense of the range, that's just like between like ninety percent in Brazil, eighty nine percent in the US, eighty eight percent in Mexico, and eighty two percent in Japan.
So like all really really high. Think where it was, like, where where the differences were though? The like one of the biggest differences is just in terms of financial advisor use. Right?
So again, in the survey, like these are mass affluent. So they at least have a hundred thousand dollars in financial assets for retirement.
Forty one percent, so they had a financial adviser, and that ranged from sixty one percent in the US to twenty one percent in Japan. So there's a huge gap globally in terms of use of advice where it is much higher in the US. It was, just to be clear, was the US sixty one percent, forty six percent Mexico, thirty five percent Brazil. There really was differences in terms of financial advisor use across countries. There's some other interesting differences too like like I think Mexico, they were the most interested in like robo type tools. But for the most part, like like everyone is is is quite confident, but how they're kind of figuring out why they're confident varies quite a bit by country.
Do you think that that's is it cultural differences between us and, you know, the US and and, you know, you said Japan, I think, was twenty one percent. Is it a cultural difference? Is it just a systemic part of their retirement plan system and as a whole? What what do you what do you think some of the differences between that?
Yeah. I'm not sure. I mean, I think that that that there is this strong sense among most people in these countries and other countries that they have a strong social system that will cover their essential expenses. So in the US, that's that's social security. Right? Other countries have other similar systems. And I think that they they do kind of strongly believe that that will be there for them when they retire.
It's less clear to me where the optimism comes from for other types of expenses. When we asked about more flexible expenses, the numbers weren't as high, but they were, again, you know, very optimistic. And, you someone that focuses a lot on retirement retirement savings, you know, like, I do want Americans to save more, and I think they should just be realistic about about how they're faring.
And, you know, objectively in the US, like, you know, I don't share the confidence of these respondents in terms of retirement outcomes. I would like to, but I just think there's more we gotta do in terms of helping people, for example, get in to find contribution plans and save more so they can get to retirement with enough.
That's a good point. Let's go further on that. So, I mean, more more savings in in DC and defined contribution plans.
We've seen, know, recently a lot of new products entering it, you know, annuities entering into the defined contribution space.
I think we're still starting to see some of the uptake on that in terms of those those products being offered. But, essentially, you're you're aligned with the idea that, one, we gotta save more in in our in our DC plans, But but also, any thoughts around just the idea of this annuities lifetime income strategies also now becoming more prevalent in the institutional space?
I I think I think it's it's great. I think that there's a variety of of domains where we maybe didn't see or talk about annuities and lifetime income enough previously, and there's a a growing recognition that I like to say, like, you you can't solve retirement with the portfolio. Like, I get me wrong. I'm a portfolio manager.
Love love me some mean variance optimization, But, like, that's not that's not a retirement income plan. And I think that that what people need are are easier ways to solve for retirement. And, you the growing interest in lifetime income and defined contribution, that's a win. I think more advisors are talking about lifetime income.
So I think that there is this just recognition that that, you know, while many advisors in the past, you know, were really focused on building good portfolios, they're they're acknowledging increasingly that, you know, a good portfolio is important, but it's just one part of a larger plan. So I think there's definitely progress there. I mean, and and and I I just can't wait to see where things are in five or ten years.
Yeah. We're about the three legged stool of, you know, Social Security retirement. Yeah. In the past, it would have been a defined benefit plan.
You know, we've seen some of the statistics of that number coming down over time, being replaced by this defined contribution, component, and then, of course, Social Security and and your personal savings. But, yeah, I think it is shifting to, you know, it has shifted to, you know, it's more reliant on the, on the individual to be, investing and saving in their in the, workplace and in their in their DC plan. Is there any differences in that? And, you know, globally, did you see from this from the study? Are they reliant upon an equivalent of a defined contribution plan or some sort of government plan? Is that more prevalent in other countries in the survey?
So, you know, we didn't we didn't really get get into those specifics. And if I just think about about, you know, globally, there is a a shift to define contribution. So I think that, you know, almost regardless of what country we think about, I think there is this this increasing personal responsibility. I think that, you know, countries do take a very different approach in terms of, you know, whether you're automatically enrolled in the plan, what what what is your savings rate in the plan. But but, again, I think that, like, the future of retirement is is us all doing it ourselves.
And and there are pros and cons to that, but I think that, you know, like, people love defined benefit plans where you can create your own defined benefit plan with your savings. So I think that, you know, I I think that there's ways to kind of to help people figure this out. And, you know, people talked about, like, mandates around annuitization. Like, I don't think we're gonna get there anytime soon. But to me, I think what I've just really enjoyed are just the rising percentage of advisers and households kind of actively thinking about how to do this in retirement to today versus, say, ten or twenty years ago.
David, finally, just kind of thinking about summer summarizing this the study, any takeaways you'd share, you know, for the for the listeners today that you know, from income planning strategies, maybe do we have to think about it differently with longevity in play more so in the future? Is there anything different that we should be thinking about in terms of guiding consumers, working with advisers, written plan? What are your thoughts?
I mean, I I think I think having an actual plan, having actually crunched numbers and and retirement's more than just a financial plan. Right? It's it's gonna be your life for twenty or thirty years. So thinking about how you wanna spend your time, what you wanna do.
I think the key is is being proactive. You know, I often say that, you know, when you're with you when you're in your thirties and forties, it may feel like a mirage. Like, why am I even saving for retirement? And to be honest, like, I like to use the term financial independence versus retirement.
You know, don't don't think of yourself as as eventually playing golf every day if that's not your passion. Think about giving yourself the possibility of doing whatever you want.
And unfortunately, for better or worse, that that that takes saving money and saving money isn't easy, but the the earlier that you start down that path, the the more opportunities you'll have to kind of make better decisions and have a better outcome.
David, great great conversation today. Thank you for sharing some of the the results from the twenty twenty five global retirement poll survey.
Look forward to reading more about that, and I'm sure our listeners will as well.
You know, you shared some great thoughts around you know, it's clear the confidence alone is not enough and that people, even though they believe they're okay, heading into retirement, the research, I think, showed that there is a gap of that confidence and that they need to think about, working with a financial professional, having a clear written plan, as you just mentioned, sort of that, thinking about those withdrawal strategies. It's all part of the part of the equation, I think, trying to get that confidence level up and become a reality. I also thought it was interesting, the global perspective. It also just sort of reminds us that, you know, while there's different cultures and different retirement systems out there, the underlying challenges are are somewhat similar across different regions as well. So, again, thanks for sharing that. I really appreciate you being here today.
Sure thing.
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