Mass Affluent Americans Push Back Retirement Date and Take Steps to Get on Track in Greater Numbers

New York - 27 April 2012

Gen Y Shows Greatest Concern About Financial Future

Fifty-seven percent of working mass affluent Americans expect to retire later than they planned a year ago, according to the latest Merrill Edge Report. This shows a 36 percent increase from January 2011. The report, released today by Bank of America, is a semi-annual quantitative and qualitative study of the financial concerns and priorities of the mass affluent (consumers with $50,000-$250,000 in investable assets).

“While the economy is showing signs of a turnaround, our data indicates the outlook among the mass affluent is not quite as positive,” says Dean Athanasia, Preferred and Small Business executive at Bank of America. “In spite of their increased efforts to get on track, this group is pushing back their retirement in greater numbers than we’ve seen before.”

Balancing short- and long-term finances

Balancing their short- and long-term finances continues to be one of the greatest challenges for the mass affluent. The data shows an increase among those who admit to tapping into their long-term savings or investments to meet short-term financial needs (34 percent) than previously seen in November 2011 (27 percent). Additional findings include:

  • Long-term finances pose greatest concern: The greatest financial concerns among the mass affluent revolve around long-term issues, including the rising cost of health care (89 percent), ensuring retirement assets last throughout their lifetime (83 percent), and being able to afford the lifestyle they want in retirement (80 percent).
  • Issues take precedence over candidate: While the mass affluent are concerned with the upcoming presidential election (71 percent), they show greater concern with the issues, such as health care legislation (80 percent), the future of Social Security benefits (77 percent) and the U.S. government’s budget deficit (77 percent).
  • Parents paying more for child’s education: Fifty-six percent of mass affluent parents have paid or expect to pay more to send their first child to college than they had expected when the child was first born. When asked why, those who currently have a child in college or that has graduated, 64 percent say the college or university was more expensive, while 32 percent want to keep their child out of debt.
  • Focusing on financial management: The mass affluent plan to focus on financial management tasks in the next six months more so than seen in the Fall Merrill Edge Report, such as: budgeting (85 percent), up from 67 percent in November; balancing short- and long-term finances (71 percent), up from 55 percent; and saving for retirement (68 percent), up from 49 percent. In addition to these efforts, 77 percent of respondents note mobile banking has helped improve how well they manage their finances.

As one qualitative respondent acknowledges, “I just created a monthly budget, so I will be focusing on that in the next six months as a way to avoid overspending. Hopefully, I will be able to start putting away some money in savings again.”

Making sacrifices to get on track

As getting back on track is a high priority for mass affluent Americans, many are willing to make short-term sacrifices in order to get their finances in better shape. Some of the methods this group will utilize in order to meet financial obligations include cutting back on entertainment and personal luxuries (61 percent), trimming day-to-day expenses (56 percent) and keeping the same car longer than they’d like to (49 percent).

“The mass affluent are taking more steps now than we saw just six months ago to improve their finances, but balancing their budget for today and saving for retirement continues to be their number one struggle,” says Alok Prasad, Merrill Edge executive at Bank of America. “We’re heartened to see so many in this group making additional strides, like cutting back on unnecessary purchases and taking on more DIY projects, to make those goals a reality. For most, starting the process is the hardest part, and this group has taken that first, crucial step.”

In addition, signaling a commitment to their savings efforts, 70 percent of mass affluent Americans say they took on home improvement projects in the last year, such as plumbing, painting, and home cleaning, that they would normally hire someone else to do. Younger members of the mass affluent were more likely to embark on these home improvement projects than their older counterparts, as 84 percent of 18- to 34-year-olds took on a project, compared to 77 percent of 35- to 50-year-olds, 70 percent of 51- to 64-year-olds and 60 percent of those 65 and older.

Generation Y proves to be “Generation Worry”

Mass affluent aged 18-34 are much more worried about their financial future than older generations, but are less likely to take as many steps to get back on track. Interestingly, however, this group is also most likely to manage their investments on their own (63 percent).

“The Merrill Edge Report shows that there are significant differences between the generations, with Gen Y particularly concerned with their financial future,” said Athanasia. “For Gen Y, this is their first investing experience, and the downturned economy has had a significant impact on their outlook and approach to risk. The data shows that Gen Y is proving to be ‘Generation Worry’ and we’ll see these concerns take their toll as they approach other life milestones like paying for college and retirement.”

While the long-term poses the greatest concern for the mass affluent overall, Gen Y is worried about both the long- and the short-term equally. Seventy-nine percent of Gen Yers express apprehension about caring for an aging parent or adult child compared to 49 percent overall. In the short-term, 92 percent of younger mass affluent say financially supporting their family is a concern in contrast to 61 percent overall.

The data also indicates this age group is most likely to tap into their long-term savings to pay for short-term expenses (41 percent). Yet, they are also less willing to make changes to meet their financial goals such as cutting back on entertainment and personal luxuries (57 percent) and keeping the same car longer (48 percent). As a result, 71 percent of Gen Y already expects to retire later than planned—a stark difference from those aged 35-50 (59 percent) and 51-64 (60 percent).

For a complete, in-depth look at the mass affluent, read the entire Merrill Edge Report. Additional topics covered in the report include the level of financial responsibility mass affluent parents take for their adult children, paying for college and weddings, lifestyle trade-offs made to save money, important financial lessons they teach their children, and whether they believe their children will achieve greater financial success.

Merrill Edge Report Methodology

Ketchum Global Research & Analytics and Braun Research conducted the Bank of America Merrill Edge Report survey by phone between Feb. 13 and Feb. 29, 2012 on behalf of Bank of America. Braun contacted a nationally representative sample of 1,000 Americans in the United States with investable assets between $50,000 and $249,999, and oversampled 300 mass affluent in San Francisco and Los Angeles. The margin of error is +/- 3.1 percent for the national sample and +/- 5.7 percent for the oversample markets, with both reported at a 95 percent confidence level.

To help inform the Merrill Edge Report, Communispace conducted a series of qualitative studies including interactive conversations, surveys, and other dynamic and exploratory activities with its proprietary online community of 300 mass affluent consumers.

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