T. ROWE PRICE: INVESTORS WITH A FORMAL FINANCIAL PLAN HAVE DOUBLE THE WEALTH ENTERING RETIREMENT

Rhea-AI Summary

T. Rowe Price's new report highlights the benefits of financial planning for retirement, showing that individuals with a formal financial plan have more wealth entering retirement. The report emphasizes the importance of working with a financial advisor and contributing more towards retirement. Demand for financial planning services is strong among those nearing retirement age, with many citing lack of money as a major obstacle.

Financial Analyst

The findings from T. Rowe Price highlight a significant correlation between formal financial planning and wealth accumulation for retirement. This underscores the value of financial advisory services, which could lead to increased demand in the sector. Investors in financial advisory firms or services may see this as a positive indicator for future growth. The report’s indication that individuals with a formal financial plan contribute more toward retirement suggests a potential for higher asset inflows into retirement accounts managed by these firms, which could positively affect their revenue streams and profitability.

Furthermore, with 38 percent of respondents over 50 citing insufficient funds as a barrier to retirement planning, there is an evident market opportunity for advisory services that cater to this demographic. This could lead to strategic shifts within the industry, as firms may develop targeted offerings to capture this segment, potentially driving competition and innovation in the space.

Market Research Analyst

The report indicates a growing trend among near-retirees seeking financial planning services, which could influence market dynamics. Companies within the financial advisory space might consider this an opportunity to expand their customer base, particularly among the 50-plus age group. The heightened confidence reported by individuals with a formal plan could also serve as a compelling marketing message to attract new clients.

For investors, this trend may signal a shift in consumer behavior, with a preference for personalized financial advice over self-directed retirement planning. This could impact the allocation of investment into fintech companies that provide digital advisory platforms versus traditional financial advisory services. Analyzing the competitive landscape, firms that offer a hybrid model combining technology with human advice might emerge as frontrunners, catering to a clientele that values both convenience and expertise.

Behavioral Economist

The behavioral implications of the report are noteworthy. The psychological effect of increased confidence among those with a formal financial plan can lead to more disciplined saving behaviors and better financial decision-making. This behavioral shift is important for the retirement planning industry as it can result in more consistent and long-term engagement with financial services. From an economic perspective, this can lead to a more financially secure aging population, potentially reducing the strain on public resources in the long run.

Additionally, the fear of not having enough money for retirement, indicated by a significant portion of the survey's respondents, may be a driving force behind the demand for financial planning services. Addressing this fear through education and tailored financial advice could not only improve individual financial outcomes but also have a positive effect on the overall economy by encouraging higher savings rates and investment in retirement funds.

Working with a financial advisor leads to more confidence and better outcomes in retirement

BALTIMORE, March 19, 2024 /PRNewswire/ -- T. Rowe Price, a global investment management firm and a leader in retirement, today published a new report that reveals the importance of financial planning for retirement. The report shows a correlation between individuals with a formal financial plan and having two to four times more wealth when entering retirement compared to those without one. Individuals with a financial plan are also more likely to contribute more toward their retirement and work with a financial advisor.

The report also found that the demand for financial planning services is strongest among individuals who are within one to five years of their retirement date, and 38 percent of respondents over the age of 50 indicate that not having enough money was their most significant obstacle to starting retirement planning.

"The retirement industry has historically focused on helping savers climb the hill of contributing toward their future retirement," said Bill Meyer, head of Retiree, Inc. at T. Rowe Price. "However, given the number of complex financial decisions facing retirees on the other side of that hill, the need for better planning and guidance through retirement is clear. Ultimately, having a formal financial plan tailored to one's specific needs can help not only with wealth accumulation, but also with making retirement savings last longer."

Additional key insights from the report include:

• Survey respondents with a formal plan reported 60 percent higher confidence about their financial outlook
• Seven in ten pre-retirees who responded to the survey were in the process of forming a retirement plan or thinking about it
• Sixty percent of survey respondents indicated that their employers are the primary source for financial education and guidance
• Forty percent of respondents stated that they are willing to engage a financial advisor and are interested in using digital planning tools to help with income, savings, and spending

Meyer continued, "Advances in technology have given investors greater access to effective and convenient solutions for personalized financial planning, and we expect the demand to increase, especially for tools involving retirement income."

Plan sponsors can meet this need by providing digital services and financial wellness programs that address the impending needs of pre-retirees and families in retirement. These types of solutions are not only valued by participants but could also be a catalyst for driving better retirement outcomes.

The insights from the report are based on T. Rowe Price's annual Retirement Savings and Spending study, which surveys a national representative group of 401(k) participants. The report with more details on the importance of financial planning for retirement can be found here. Retirement Income was a key theme in T. Rowe Price's 2024 U.S. Retirement Market Outlook.

ABOUT T. ROWE PRICE
Founded in 1937, T. Rowe Price (NASDAQ – GS: TROW) helps individuals and institutions around the world achieve their long-term investment goals. As a large global asset management company known for investment excellence, retirement leadership, and independent proprietary research, the firm is built on a culture of integrity that puts client interests first. Clients rely on the award-winning firm for its retirement expertise and active management of equity, fixed income, alternatives, and multi-asset investment capabilities. T. Rowe Price has $1.51 trillion in assets under management as of February 29, 2024, and serves millions of clients globally. News and other updates can be found on Facebook, Instagram, LinkedIn, X, YouTube, and troweprice.com/newsroom. 

IMPORTANT INFORMATION

The Retirement Savings and Spending Study is a nationally representative online survey of 401(k) plan participants and retirees. The survey has been fielded annually since 2014. The 2023 survey was conducted between July 24, 2023, and August 13, 2023. It included 3,041 401(k) participants, full-time or part-time workers who never retired, currently age 18 or older, and are either contributing to a 401(k) plan or eligible to contribute with a balance of $1,000 or more. The survey also included 1,176 retirees who have retired with a Rollover IRA or left a 401(k) plan balance.

This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and not intended to suggest any particular investment action is appropriate for you, nor is it intended to serve as a primary basis for investment decision‑making.

Any tax‑related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or tax professional regarding any legal or tax issues raised in this material. 

The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal.

T. Rowe Price Investment Services, Inc., distributor, and T. Rowe Price Associates, Inc., investment adviser. Retiree, Inc. is a wholly owned subsidiary of T. Rowe Price. T. Rowe Price Investment Services, Inc. and T. Rowe Price Associates, Inc. are affiliated companies.

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SOURCE T. Rowe Price Associates, Inc.

How does having a formal financial plan impact wealth in retirement according to T. Rowe Price's report?

Individuals with a formal financial plan have two to four times more wealth entering retirement compared to those without one.

What percentage of respondents over the age of 50 cited lack of money as a significant obstacle to starting retirement planning?

38 percent of respondents over the age of 50 indicated that not having enough money was their most significant obstacle to starting retirement planning.

Who is the head of Retiree, Inc. at T. Rowe Price mentioned in the report?

Bill Meyer is the head of Retiree, Inc. at T. Rowe Price mentioned in the report.

What key insight did the report reveal about confidence levels among survey respondents with a formal financial plan?

Survey respondents with a formal plan reported 60 percent higher confidence.

What is the main focus of the report published by T. Rowe Price?

The report emphasizes the importance of financial planning for retirement and the benefits of having a formal financial plan tailored to one's specific needs.