The Rich Fear Retirement Too


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BOSTON (TheStreet) — The nation’s wealthy seem to be every bit as concerned about retirement as their middle-class counterparts.

In its recent study, The Age Illusion: How the Wealthy are Redefining Their Retirement, Barclays Wealth, the wealth management division of Barclays Bank(BCS_), found anxiety levels running high among the affluent looking at retirement, as well as lingering doubt about financial preparedness for that phase of life.

The report was based on a global survey of more than 2,000 people with $1.5 million or more in investable assets.

Only 48% of U.S. high net worth people would completely classify themselves as financially secure. One in 10 of the wealthiest surveyed (meaning they had more than $15 million in investable assets) feel they don’t have enough money for retirement. Among the global pool of wealthy respondents who are already retired, only 51% are “completely confident” they have enough money.

Why, given the unlikely prospect that cat food and a cardboard box lie ahead, are the wealthy so unsure?

“The wealthy are the people who have the most to lose, so it’s a little bit understandable that they are anxious,” says Matt Brady, head of Wealth Advisory Americas at Barclays Wealth.

He sees a number of factors at play, not the least of which is the jolt provided by collapsing financial markets throughout the Great Recession.

The predictability, or lack thereof, of expenses and projected investment returns is a top-of-mind issue.

The authors of the report found it “unexpected” that respondents in emerging markets are much more likely to view investment returns as “quite predictable” or “very predictable” in the context of planning for retirement, despite a general perception of these markets themselves as being economically unpredictable.

Only a quarter of respondents in the U.K. and Japan, countries with highly developed financial systems, thought their returns were as predictable. By contrast, almost three-quarters of respondents in Saudi Arabia, Latin America or India thought they were. Only 41% of North American respondents said they were confident with their assumptions.

“I think that naturally leads to insecurity about whether you are going to have enough to retire,” Brady says. “When you see that uncertainty about rates of return and the experiences of the past couple of years play into that, it indicates that a lot of people feel uncertain about what that means for their retirement years.”

The study also suggests age could play a factor.

Fifty-nine percent of millionaires in the emerging markets are under 45, compared with just 21% in the U.S.

“It is clear that individuals’ confidence in their ability to predict rates of return declines as they approach retirement age,” the study suggests.

Concerns about leaving a financial legacy proved to be not much of a factor at all.

According to the survey, nearly all respondents in the United Arab Emirates and Saudi Arabia said they feel “financially responsible” for their children. Respondents in Ireland (83%), Qatar (82%) and South Africa (80%) agreed. By contrast, only 44% of Americans said they felt that way.

“In 2008 and 2009, after the markets plunged and interest rates were incredibly low, it actually was a great time to talk to families about transferring assets — wealth transfer to minimize gift and estate taxes,” Brady says. “But even some of the wealthiest families we dealt with were unwilling to do that. They were unsure of how much money the senior generations would need. If you sat down and did a rational calculation, you would know that the family was worth, in some cases, hundreds of millions of dollars. They are not going to be meaningfully constrained in the future. But it still had an emotional impact on their willingness to give up assets, even to family members.”

Because they lack a family legacy of wealth management, many of the newly affluent are plagued by unique questions and challenges.

“In the U.S., a lot of wealth is first-generation wealth, and when you’ve made your own money I think there is a natural process you go through of wondering what the best thing to do with it is,” Brady says.

Retirement itself — transitioning from working every weekday — is a particular concern.

“Managing a liquid portfolio is a lot different than running a business, and a lot of people take a while to get to get comfortable with that later stage,” Brady says.

Taxation is another topic that apparently causes the rich to lose sleep — even if it means returning to a tax rate where the rich did just fine.

“Partly it is just uncertainty, but the whole idea of taxes going higher and the government taking more out of your pocket is another factor that weighs into retirement thinking,” Brady says.

— Written by Joe Mont in Boston.


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