Mon, 13 May 2024 | economy retirement
As economic ambiguity and inflation heighten investors' retirement concerns, Americans are coming to terms with a difficult reality: their retirement prospects are more uncertain than they anticipated, and their inability to know what to expect in the future is throwing their plans into flux.
According to Nationwide's ninth annual Advisor Authority survey, powered by the Nationwide Retirement Institute®, more than 6 in 10 (61%) investors say their expectations for retirement have changed significantly in the last five years. Nearly half report that their dreams for retirement have been delayed, altered, or cancelled due to the economic conditions seen in the last five years.
In the face of these headwinds, just 38% of investors believe in having a retirement savings target or a specific savings goal for retirement. For those that do have a figure in mind, 42% of investors believe they need between $1 million and $2 million to retire, while 18% believe they need more than $2 million saved to comfortably retire.
"Americans believe they will need over $1 million to retire comfortably – a figure that could be discouraging for even the most committed retirement savers," said Rona Guymon, Senior Vice President of Nationwide Annuity Distribution. "What's important to remember is that everyone's 'magic number' in retirement will vary depending on a number of variables including spending habits, health, debt levels, location and more. It's good to have a goal in mind, but holistic financial planning with an advisor is more likely to lead to a comfortable retirement. At the end of the day, a magic number doesn't tell you much about how long your income will last over an uncertain amount of time in retirement. That's where holistic financial planning can make all the difference in the world to address the anxiety of a nervous investor."
This lack of a 'magic number' and anxiety about an uncertain financial future is causing concern about affording necessary items in retirement. Investors age 55+ or currently in retirement are most worried about paying for basic living expenses (83%), medication and other health-related items (58%), and supplemental health insurance (39%) in retirement. To meet these financial commitments, this same cohort is foregoing big and small pleasures today, spending less on luxury goods (47%), leisure (44%), entertainment (44%), and vacations/trips (38%).
External Factors Sway Retirement Optimism
For many investors, the uncertain economic landscape presents an ongoing challenge to retirement planning. Three in 4 investors are concerned about a US economic recession in 2024, including 81% of those farthest from retirement (non-retired 18- to 54-year-olds).
As a result, nearly 1 in 3 (31%) non-retired investors believe an economic recession poses the most immediate challenge to their retirement portfolio over the next 12 months, and over half (53%) of non-retired investors expect interest rates to be increased 12 months from now.
These factors are forcing investors to consider a difficult reality — that the concept of an accessible and absolute retirement is no longer a realistic post-career possibility. More than a quarter (27%) of all non-retired investors would likely be forced to return to the workforce at some point due to inadequate savings if they retired in the next 12 months, and 1 in 5 (19%) non-retired investors are unsure if they will ever retire. Moreover, an additional 19% claim that they will retire later than planned because of inflation.
"While it's understandable that the turbulent markets we've seen over the last few years have investors on edge, we no longer expect a recession in 2024 and still predict rate cuts will occur later this year," said Mark Hackett, Chief of Investment Research at Nationwide Financial. "It's important for investors to focus on what they can control in today's economic environment, and one way they can do that is by working with their advisor or financial professional to establish or revisit their long-term plan to ensure it remains aligned with their retirement goals."
Financial Advisors Identify with Their Clients' Concerns
As investor concerns proliferate, financial advisors are providing strategic solutions to help ensure a stable retirement for clients. Nearly half of advisors (48%) say the rising cost of living has influenced their clients to rethink or redefine their retirement planning strategies.
In addition, advisors say their clients are taking non-traditional, or in some cases, approaches that may lead to adverse outcomes to meet financial commitments in retirement. More than a third (34%) of advisors say their clients are drawing more funds from their retirement accounts to meet financial commitments. Nearly 1 in 4 (23%) financial advisors say their clients are liquidating assets, and 16% say their clients are moving in with adult children.
Financial advisors believe these adjustments are significantly changing their clients' perceptions of retirement. Nearly half (47%) of advisors say working in retirement is one strategy their clients are using that would be considered radically different from that of their parents or grandparents. To help these clients protect their assets against market risk, advisors are using annuities (79%), diversification and non-correlated assets (77%), and liquid alternatives, such as mutual bonds or ETFs (58%).
"It's clear that having a trusted advisor makes a difference when it comes to feeling confident about living comfortably in retirement," Guymon said. "Advisors and financial professionals should seize this opportunity to engage with their clients to reinforce the importance of sticking to their long-term plan. Another way to address client anxiety around retirement goals is to help them understand the value of protection solutions, like annuities, which can guarantee income in retirement and guard against market volatility."