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The Many Flavors of Retirement Savers: Individuals’ Response

Practice Management

Editor’s note: This the third in a four-part series. The original appears in its entirety as the cover story of the Winter 2023 edition of Plan Consultant magazine. The digital edition of the Winter issue is available here. However, access to Plan Consultant is restricted to ASPPA members, so you’ll need to be logged in. The first part of this series appears here; the second part appears here

Not only were workers in the past more likely to leave the workforce with a DB plan financing their retirement, they also drew upon those funds in different ways than do more current retirees, write Siliciano and Wettstein. They say the assets of retirees participating in a DB plan fell less by age 70 than do those of retirees not covered by one. 

Increasing longevity exacerbates the effects of decumulation. DB plans, they argue, protect against longevity risk; however, due to less liquidity they do not readily provide funds that may be necessary if a sudden health issue arises. DC plans offer more liquidity; however, spending patterns among those with DC patterns are not the same as those of previous generations that spent less readily. 

Siliciano and Wettstein point out that required minimum distributions and annuitized wealth are additional factors relevant to retirement savings and drawing down those funds that did not exist for earlier generations.

All that places retirees at risk of having no ability to handle unexpected expenses, as well as pose difficulty for those living a long life. 

Round Two

The number of retirees returning to the workforce is increasing, said MagnifyMoney in a 2022 report that cites inflation and labor market changes as reasons why higher numbers of adults age 65 and older are returning to the workforce. Magnify Money is not alone—in their 2022 U.S. Retirement Survey, the investment management firm Schroders found that 69% of working Americans plan to work in retirement. 

And in “Longevity and the New Journey of Retirement,” a study of more than 11,000 North American adults that examined the changing definition of retirement, Edward Jones and Age Wave found that:

  • 59% want to work in some way during their retirement;
  • 22% want to work part time;
  • 19% hope to cycle between work and leisure; and 
  • 18% want to work full time.

Older Americans returning to the workforce may not be a bad thing, suggests Schroders. They found that 54% of those age 60-67 said they have saved less than $250,000 for retirement; in addition, 57% of retirees said they saved less than $250,000 when they retired. Furthermore, 44% of retirees said that their expenses are higher than they anticipated. 

Clients’ Anxiety 

Demographic shifts, economic challenges and a global pandemic are ingredients for stress, including anxiety about finances. Many financial planners underestimate it, says a study sponsored by Allianz Life and the Financial Planning Association. They found that on average, financial planners thought financial anxiety affected almost half (49%) of their clients. But the researchers found a disconnect: 71% of those clients said they were experiencing financial anxiety. 

Financial Finesse in its 2021 Financial Wellness Year in Review suggests that such anxiety is widespread: they found that 81% of Millennial and Gen Z employees are experiencing some level of financial stress, and 40% are uncomfortable with their debt. 

But Generation X is even more stressed, suggests State Street Global Advisors in its 2022 Inflation Impact Survey. They say that Gen X is significantly more concerned than the generations surrounding them on either side of the age spectrum — Millennials and Boomers — about the economic outlook, maintaining their current standard of living, retiring on time and affording expenses in retirement: those groups’ concern was at 88%, 72, and 70% respectively. And more than half of the Gen X individuals who participated expressed worry about being able to afford retiring when they planned to. 

Research by T. Rowe Price in 2022 illustrates why that matters: they found that retirement plan participants who are stressed about debt save less for retirement than those who are not.

Coulda, Shoulda

An expert panel in a June 2022 Employee Benefit Research Institute (EBRI) webinar discussed retirees’ views on their situations and how their decisions led them to those choices. Bridget Bearden, Research & Development Strategist, EBRI, cited research EBRI and Edelman Financial Engines conducted concerning 1,109 retirees aged 55 to 80 with assets of $50,000 – $5,000,000. 

Key findings include: 

  • Current retirees wish they had saved more and planned earlier for retirement. 
  • Twenty-five percent of retirees reported that their former employer offered financial planning assistance, potentially reflecting a timing difference or an awareness gap. 
  • Many retirees lack a formal financial plan for retirement. 

Half of respondents said that they would have changed their financial habits if they had known doing so would have improved their current situation, said Bearden. That rose to 53% of those without a financial plan, and to 57% of those with less than $500,000. 

About half — 49% — said they wished they had started planning for retirement earlier, said Bearden, and 55% of those who have $500,000 or less said so. Furthermore, 40% of those with $500,000-$2,000,000 and 57% of those with less than $500,000 said that they would have changed their financial habits during their working years in order to improve their financial situation in retirement. And 72% of those who said they would have changed their behavior said that they would have saved more or started saving earlier. 

Next: Improving Readiness