Thu, 01 April 2021 | retirement investing
As COVID-19 continues to drive economic uncertainty, Americans are facing critical choices about how to invest and approach a financially secure retirement. A new survey conducted by Capital Group, home of American Funds, and one of the world’s leading investment management firms, finds that investors of all ages may lack the confidence, knowledge and resources needed to do just that.
The research analyzes the sentiments and behaviors of 1,215 American adults amid the ongoing pandemic. While nearly 9 out of 10 investors find the predictability of a monthly “retirement paycheck” appealing, notable gaps in financial education, investment confidence and employer resources may be preventing them from realizing this goal.
“People envision a life of predictability and simplicity after retirement. This may be why the consistency of a monthly retirement paycheck is so appealing to investors," said Toni Brown, senior vice president and head of retirement strategy for Capital Group. "But as the pandemic has shown, our expectations are all too often disrupted by reality. Helping investors realize the goal of a retirement paycheck is anything but straightforward, and plan sponsors and financial advisors have an important opportunity to educate them on how to get there.”
Perception versus reality
The survey found that nearly 7 in 10 investors (68%) are confident they will reach their retirement goals by the time they leave the workforce. Men appear to be more confident than women, with 32% of men reporting high confidence in reaching their retirement goals compared to 18% of women.
Gen Xers have the least confidence in their retirement prospects, with 37% not at all confident they will reach their goals. Millennials, on the other hand, are more likely than other age group – and significantly more likely than Gen Xers – to be confident, with 74% of millennials confident they’ll achieve their retirement goal.
However, despite investors’ overall confidence in their abilities to reach their retirement goals, the survey found wide disparities across investors in terms of what they consider “real money” in their retirement accounts, versus the amount they’d like to have saved when they retire. When asked to envision the amount of money in a retirement savings account that would begin to feel like real money and make a difference in their lives, the research revealed:
Retirement spending
A powerful finding is the broad appeal of creating a regular monthly retirement paycheck using investments and savings accumulated during one’s working years.
The survey also revealed, despite investors’ overall confidence in reaching their goals, fewer than 1 in 5 respondents (19%) are very confident they understand the specific steps required to move from saving money for retirement, to spending money in retirement. In addition, only 19% of respondents are very confident they know how to set up the right drawdowns from their savings and investments.
In fact, while investor preference for the predictability of a retirement paycheck is clear, more than a quarter of investors (28%) have failed to consider what they’ll do with their money after they retire — including a third of Gen Xers (32%), and a quarter of baby boomers (24%) who are much closer to retirement.
401(k) confidence
The survey finds the majority of investors (83%) are confident that investing a portion of their paycheck into their employer 401(k) plan or other retirement savings account will help them build a nest egg. However, only a third of all investors (32%) report knowing exactly what investments their retirement plans contain, with women significantly less likely to know (23%) compared to men (39%). One-third of women (33%) also say they feel unprepared when it comes to selecting the investment options in their workplace retirement plan, with 1 in 10 (13%) saying they feel totally unprepared for making decisions about their plan, compared to only 4% of men who say they feel unprepared.
Education toolbox
Plan sponsors who take a one-size-fits-all approach to retirement plan communications might want to “retire” their thinking. When asked what types of tools and information investors wish their employers would provide to help navigate their retirement plans, responses varied across employee profiles:
For additional information and the full report, click here.
Source: Capital Group