One in five affluent US citizens have tapped into their long-term savings and investments to meet immediate financial needs during the last year, the latest Merrill Lynch Affluent Insights Quarterly survey reveals.

The top three reasons for dipping into their nest egg was to cover regular monthly expenses (35 per cent), pay down excess debt (27 per cent), and compensate for a loss in income within their family (19 per cent).

In terms of investing, the survey also found that a large number continue to take a more conservative approach to managing their investments. When asked what best describes their cash management strategy for the year ahead, 33 per cent of affluent Americans intend to keep cash in interest bearing accounts.

Sallie Krawcheck, president of Bank of America Global Wealth and Investment Management, told journalists during a conference call that the strongest growth at the firm is its deposits business, which has $244 billion in deposits.

The younger affluent, ages 18-34, are more concerned than other segments of the affluent population about many financial issues. Ensuring retirement assets will last through their lifetime was of higher concern to the younger affluent (70 per cent) compared the affluent community overall (57 per cent).  

“Eighteen to 34-year-old investors are more concerned and conservative than their parents are,” Krawcheck said.

The number one lesson the affluent have learned from the recent recession is to spend within their means (38 per cent), more than creating an emergency fund for unexpected events (19 per cent) or being a more diverse investor (10 per cent).

More than one-third (37 per cent) indicate spending less today than they were one year ago. When asked how their spending habits have changed, 27 per cent indicated cutting back on luxury items/recreational activities, and 23 per cent are spending less and/or more closely managing day-to-day expenses.

“The affluent have become much more grounded and realistic as a result of the recent recession,” Lyle LaMothe, head of US Wealth Management, said during the conference call.

This focus on reining in spending may be attributed in part to ongoing concerns about costs associated with their future. The survey found that the rising cost of health care (60 per cent), and being able to afford the lifestyle they want in retirement (51 per cent) have remained the affluent’s top financial concerns throughout the year. When asked specifically why the rising cost of health care was of high concern, respondents indicated that they are:

- Concerned they won’t be able to financially support their health care needs in the future (47 per cent).

-Unsure how future health care costs should factor into their overall financial/retirement plan (42 per cent).

-Concerned Medicare will not be there when they need it (29 per cent).

-Confused how new health care reform will impact them personally (28 per cent).

A great deal of uncertainty also exists around how pending tax reform may affect their financial life. Half (52 per cent) of affluent Americans are concerned about the possible impact of tax reform in 2011 and beyond, and 60 per cent are taking some action to prepare themselves, such as meeting with their financial advisor (31 per cent), meeting with their CPA (15 per cent) and maximizing their retirement contributions (15 per cent).

Forty-one percent of affluent Americans indicate feeling financially better off today than they did one year ago (37 per cent cite being in roughly the same place), and more than three out of four (78 per cent) are confident that their personal financial picture will improve during the year ahead.

Despite this, the percentage of affluent that expect to delay retirement jumped dramatically from the beginning of the year. Sixty-one percent expected to retire later than they had planned, up from 29 per cent in January.

“It is time to retire the word retirement,” Andy Sieg, head of retirement and philanthropic services said during the conference call. Later in life is becoming more about a second act in careers, particularly with Baby Boomers, he added.

Affluent investors are speaking with their financial advisor more frequently today than at any point during the last year, with half (51 per cent) indicating they speak with their advisor at least monthly, compared with 39 per cent in October 2009.

The survey also examined the mindsets and certain business and personal finance behaviors of affluent small business owners. Although the majority (56 per cent) believe their business is in a better financial position today than it was one year ago, 69 per cent indicate not being able to employ the amount of staff their business needs, citing a “lack of business/revenue” as the most common reason (32 per cent).

Braun Research conducted the Merrill Lynch Affluent Insights Quarterly survey by phone between September 13 and October 7 on behalf of Merrill Lynch Global Wealth Management. Braun contacted a nationally representative sample of 1,000 affluent Americans with investable assets in excess of $250,000, and oversampled 300 affluent Americans.