RIIA's Retirement Typology —
Charting the Landscape: The Retirement Income Market Retirement Income Industry Association Strategic Study Series October 2006

Strategic Business Insights' (SBI's) Consumer Financial Decisions (CFD), along with Turner Consulting LLC, is pleased to offer the full version of this report to current RIIA members and other institutions interested in learning more about consumers' financial attitudes, behaviors, and needs regarding retirement.

This 50 page exhibit-, graphic-, and analysis-filled full version comes with an additional 40 pages of (static) data analyzed by each of RIIA's 16 Retirement Typology segments. Anyone may purchase the full version of this report for $5000. (RIIA members may purchase this full version at a discount, or download the members' version of this report at the RIIA Members Web site. If you are a RIIA member and would like more information, please contact Deborah Burkholder; +1-617-342-7390.) Also available for purchase are the report data in (dynamic) Excel format for an additional fee of $1500.

If you have any questions, comments, or suggestions about this report, or for more information about ways in which CFD can help your institution, please feel free to contact us.

About This Report

This report presents a brand new typology that divides American households into different categories of wealth and life stage. The categories of financial wealth are: Wealthy (top 5%), Affluent (next 15%), Mass Market (middle 50%), and Marginal (last 30%), which are combined with the life stage categories: Starters, Builders, PreRetirees, and Retirees. The report looks at the household assets and income, institutions where the assets are held, the kinds of retirement products being used, household decision making and use of financial advisors, and selected financial attitudes toward investing, Social Security, and retirement. The study will help financial services firms focus more precisely on retirement income market opportunities.

RIIA's Retirement Typology: Segment Sizes

RIIA's Retirement Typology: Segment Sizes

Using this analytical framework, it is possible to map the behaviors, financial holdings, and financial attitudes of households in each segment to the products and services of financial services firms that serve their financial needs. At the same time, RIIA's Retirement Typology shows how well providers have penetrated various market segments of RIIA's Opportunity Matrix. For example, full-service broker-dealers, CPAs, and investment managers concentrate on the Wealthy market, but from the Typology we see that they also serve the Affluent Market. Being able to link RIIA's Opportunity Matrix to the Retirement Typology enables financial institutions to explore the strategic opportunities that exist for all providers to serve different market segments. By using this map, financial services firms will get a better understanding of specific households' retirement income needs and decision-making processes. The ability to understand, size, and then target specific household groups will enable firms to design and then offer compelling and effective retirement income solutions for specific customer segments.

Mapping the Retirement Typology to RIIA's Opportunity Matrix

Mapping the Retirement Typology to RIIA's Opportunity Matrix

Report Introduction

There are over 120 million households in the United States—unique economic units in which persons share basic finances. According to the Social Security Administration, approximately 27.5 million U.S. households (23%) are currently retired. For the last half of the 20th century retirement was the stage of life during which workers could look forward to spending a few years pursuing hobbies, traveling, or taking it easy after putting in 30, 40, or more years of hard work. Whether using pension funds from their employer, Uncle Sam, or whatever funds they managed to put away in advance of retirement, many retirees could look forward to enjoying their final years.

Unfortunately, the 20th century concept of retirement is no longer sustainable.

  • Fewer households will have pensions on which to depend during retirement.
  • Uncle Sam may go broke trying to honor his commitment to pay for Social Security and Medicare.
  • Households continue to under-perform when it comes to their retirement savings.

In addition, the fact that people are living longer and the cost of medical care is outpacing inflation exacerbates the situation.

The Retirement Income Industry Association (RIIA) exists to bring together organizations interested in sharing information about the retirement challenges facing today's households. All households, whether young or old or rich or poor, face challenges when it comes to retirement. These challenges involve all aspects of the household (work, play, health, family, where they live, entertainment, charitable donations) and hence involve every aspect of the household's finances (transactions, saving, investing, borrowing, protection, information, advice, decision-making). As part of the process and structure for sharing information, RIIA offers this report which presents a retirement typology that classifies all U.S. households into sixteen mutually-exclusive segments for use in better understanding and serving consumers' retirement income needs.

To order a copy of the complete RIIA's Retirement Typology report with data, download and print the fax order form, fill it out and fax it to +1-650-859-4544, or order online.

For more information about RIIA's Strategic Study Series, this report, or ways in which these findings (and others) may be applied to your needs, please contact:

Larry Cohen
Vice President, Director
Consumer Financial Decisions
+1-609-378-5042
lcohen@sbi-i.com

Elvin D. Turner, JD MBA
Managing Director
Turner Consulting LLC
+1-860-242-4878
turnerconsultllc@comcast.net

Table of Contents

Section Page
Contents 1
Index of Exhibits 2
Index of Data Tables 4
Introduction 5
Executive Summary 6
Creating RIIA's Topology of the Retirement Marketplace 10
Sizing the Retirement Market 12
Household Financial Indicators 14
Institutional Use 19
Ownership of Retirement Products 26
Decision-Making, Advice, and Advisors 35
Financial Attitudes and Retirement Income Expectations 40
Appendix I: Study Participants 46
Appendix II: MacroMonitor Survey Methodology 48
Appendix III: Complete Supporting Data 49

Index of Exhibits

Exhibit Number Information Page
  Executive Summary  
1 Market Size of the Retirement Typology 6
2 Mapping the Retirement Typology to RIIA's Opportunity Matrix 7
3 Typology Segments Sized by Aggregate Assets 8
  Creating RIIA's Typology of the Retirement Market  
4 The Four Basic Life Stages of U.S. Households 10
  Sizing the Retirement Market  
5 Four Levels of Resources by Life Stage 12
6 Sizing the Retirement Marketplace 12
7 Segment Sizes by Number of Households 13
  Household Financial Indicators  
8 Aggregate Total Assets by Retirement Typology Segments 14
9 Aggregate Financial Assets by Typology Segments 15
10 Average Financial Assets by Typology Segments 16
11 Average Annual Income by Typology Segments 17
12 Average Disposable Annual Income by Segments 18
  Institutional Use  
13 Primary Financial Institution By the Four Life Stage Segments 19
14 Primary Financial Institution By the Four Market Segments 20
15 Percent and Mean Amount of Segments' Savings & Investments Held at Banks 21
16 Percent and Mean Amount of Segments' Savings & Investments Held at Mutual Fund Companies 22
17 Percent and Mean Amount of Segments' Savings & Investments Held at Full-Service Brokerages 23
18 Percent and Mean Amount of Segments' Savings & Investments Held at Insurance Companies 24
19 "I would prefer to do business with a single financial services company if it could meet the majority of my household's investment and insurance needs." 25
  Ownership of Retirement Products  
20 Incidence of Owning Retirement Products (Including Pensions) By Retirement Typology Segment 26
21 Incidence of Owning IRAs/SEPs by Typology Segment 27
22 Incidence of Owning 401(k)s/403(b)s/457s By Segment 27
23 Incidence of Owning Individual Annuities by Segment 28
24 Mean Balance Held in Retirement Plans (Excluding Pensions) 29
25 Aggregate Amounts Held in Retirement Plans (Excluding Pensions) 30
26 Households Primary Focus Regarding Retirement-Living Within a Fixed Income 31
27 Households Primary Focus Regarding Retirement-Health Issues 32
28 Households Primary Focus Regarding Retirement-Managing Assets 33
29 "I don't know how much to save for retirement." 34
  Decision-making, Advice and Advisors  
30 (Sometimes or Always) Obtain Advice before Making a Major Financial Decision by Retirement Typology Segment 35
31 Primary Financial Advisor by the Four Markets 36
32 Financial Advisor Used Recently by the Four Markets 37
33 "I would be willing to pay for professional financial advice." 38
34 "I need expert help in retirement planning." 39
  Financial Attitudes and Retirement Income  
35 "I am willing to accept some risk of losing money if an investment is likely to come out ahead of inflation in the long run." 40
36 "I am willing to take substantial risks to realize substantial gains from investments." 41
37 "I will rely on Social Security for my retirement income." 42
38 "I am concerned about having adequate retirement income." 43
39 "I would be willing to put most of my assets in an investment that provides guaranteed income for life, even if it pays a low return." 44

Index of Data Tables

Table Number Table Title Page
1 Table A-6B: Age of primary head of household 55
2 Table O-17: Total 2003 income before taxes 52
3 Table: Lifestage 54
4 Table E-5: Amount of money household has remaining, on average, from typical monthly income 55
5 Table ASSETS1: Total assets 57
6 Table ASSETS2: Total financial assets 58
7 Table C-1a: Household's primary type of financial institution 59
8 Table C-27_BNK: Percentage of household's savings and investments in a bank 60
9 Table C-27D_BNK: Mean dollar amount of household's savings and investments in a bank (calculated) 61
10 Table C-27_MF: Percentage of household's savings and investments in a mutual fund company 63
11 Table C-27D_MF: Mean dollar amount of household's savings and investments in a mutual fund company (calculated) 64
12 Table C-27_FS: Percentage of household's savings and investments in a full-service stockbrokerage 66
13 Table C-27D_FS: Mean dollar amount of household's savings and investments in a full-service stockbrokerage (calculated) 67
14 Table C-27_INS: Percentage of household's savings and investments in an insurance company 69
15 Table C-27D_INS: Mean dollar amount of household's savings and investments in an insurance company (calculated) 70
16 Table C-2_11: I would prefer to do business with a single financial service company if it could meet the majority of 72
17 Table F-4: Ownership of retirement products (Summary) 73
18 Table F-BAL: Balance in retirement products (Summary) 74
19 Table F-3_MULT: Household heads' current primary focus regarding retirement 75
20 Table F-1_3: I don't know how much to save for retirement 76
21 Table N-4: Frequency of receiving advice before making major household investment decisions 77
22 Table N-6: Type of financial professional that household considers its primary type of advisor 78
23 Table N-5: Type of professional advisor used in the last 2 years 80
24 Table N-3_12: I would be willing to pay for professional financial advice 82
25 Table F-1_6: I need expert help in retirement planning 83
26 Table E-4_2: I am willing to accept some risk of losing money if an investment is likely to come out ahead of inflation in the long run 84
27 Table E-4_7: I am willing to take substantial risks to realize substantial financial gains from investments 85
28 Table F-1_1: I will rely on Social Security for my retirement income 86
29 Table F-1_9: I am concerned about having adequate income during retirement 87
30 Table F-1_13: I would put most of my assets in an investment that provides a guaranteed income for life even if it pays a low return 88