Despite investors’ overall confidence in reaching their retirement goals, a new survey finds that many are unsure of how they will manage and spend their money in retirement.
According to the Capital Group’s latest Wisdom of Experience investor survey, fewer than one in five American adults (19%) are very confident they understand the specific steps required to move from saving money for retirement, to spending money in retirement.
While nearly 9 out of 10 investors find the predictability of a monthly “retirement paycheck” appealing, only about 2 in 10 (19%) respondents are very confident they know how to set up the right drawdowns from their savings and investments. Additionally, 88% believe that investing in and growing their nest egg after retirement will be important for funding their retirement years.
Confidence vs. Education
The survey also finds notable gaps in financial education and investment confidence. Not surprisingly, most 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.
Overall, 76% said they felt prepared when selecting investment options from their employer’s retirement plan. Yet only 32% report knowing exactly what investments their retirement plans contain, with women significantly less likely to know (23%) than men are (39%).
One-third of women also say they feel unprepared when it comes to selecting the investment options in their workplace retirement plan, with 13% saying they feel totally unprepared for making decisions about their plan, compared with only 4% of men who say they feel unprepared.
Additionally, 28% of investors have failed to consider what they will do with their money after they retire—including a third of Gen Xers and a quarter of Baby Boomers who are much closer to retirement.
Educational Preferences
Plan sponsors who take a one-size-fits-all approach to retirement plan communications might want to “retire” that thinking, the Capital Group suggests. Many will need advice and planning to help anticipate spending needs in retirement, including planning for the costs of health care, rolling over 401(k) accounts, setting up distributions from retirement investments, and allocating portfolios to continue growing their nest eggs while reducing the risk of volatility and losses, the firm notes.
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:
- 35% of investors utilize their employer plan administrator most for advice on how to invest for retirement, but fewer than half (46%) reported receiving materials or tools from their employer.
- 37% of women and 42% of Millennials said more personalized advice would be most helpful.
- Millennials are interested in simplified plan menus and better fund descriptions to help them make better investment decisions, while 34%of Gen Xers want clearer explanations of the plan’s investment options, and regular updates about plan changes (33%), in addition to personalized advice on what investments to choose (33%).
“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,” notes 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,” she further emphasizes.
Escalent conducted the survey from Dec. 3–9, 2020, among 1,215 American adults comprised of 405 Millennials (ages 21–39), 409 Generation Xers (ages 40–54) and 401 Baby Boomers (ages 55–73) of varying income levels who have investment assets and some responsibility for making household investment decisions.
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