The 2023 Employee Benefit Research Institute (EBRI) survey shows a notable decline in Americans’ confidence regarding their ability to live comfortably in retirement. Notably, a drop of this magnitude in confidence was last observed during the global financial crisis in 2008. Approximately 80% of workers express apprehension regarding the potential occurrence of a recession within the following year. 90% of workers say they are concerned regarding the persistence of high inflation.
Inflation Continues To Cast a Shadow
The EBRI Retirement Confidence Survey shows the impact of inflation weighing on the minds of Americans, as a significant majority of workers (84%) and retirees (67%) express concern regarding the rising cost of living, making it harder for them to save money.
Approximately 75% of employees express concerns about their salaries keeping pace with inflationary pressures, while 50% of retirees note that their overall expenditures exceed initial projections.
Household budgets are under pressure as 73% of workers and 58% of retirees anticipate making substantial spending cuts in response to inflation.
A recent Gallup Poll shows that 60% of Americans are worried about inflation and the economy. In 2022 and 2023, inflation and the economy have emerged as the predominant concerns due to the unprecedented surge in price levels unseen in the past four decades.
Retirement Savings Impacted
The decrease in retirement account balances has become concerning as Americans prepare for retirement. 40% of workers and 58% of retirees indicate decreased retirement account balances over the past 12 months.
Increased volatility in stock market investments has resulted in 74% of workers opting for more conservative investments in their workplace retirement plans.
Paul Culbreth, CFP, shares an example of his 64-year-old client living in North Carolina who is frequently worried about retirement and whether she has enough money to retire.
He says, “She makes about $148K per year and had $2.3mm in investible assets last year when we completed the plan. With only $80K in annual expenses (inflated at 3%) and assumed growth of her investments at 5%, the plan estimated that her total income-generating assets at age 90 was just under $5mm. Her plan suggests that she had enough to retire with base assumptions, so I recommended reducing the overall risk in her investments as she does not need to take on additional risk. This eased her concerns momentarily.”
Approximately 75% of workers and 66% of retirees prioritize guaranteeing a consistent monthly income for life compared to preserving principal balances.
Unfortunately, 2022 and 2023 are not your typical year for stocks and bonds compared to historical averages. Even conservative-leaning portfolios suffered, with bond investments performing the worst in the last 40 years. The Bloomberg Barclays US Aggregate Bond Index returned -13.01% in 2022.
Social Security and Medicare Concerns
There has been a decline in worker confidence regarding Medicare, with just half feeling somewhat confident it will continue to provide benefits of equal value to those received today.
Amanda M. Howerton, CFP, CDFA, advocates building a plan that addresses retiree’s financial goals and incorporates their feelings and values surrounding money. She says, “If peace of mind is a dearly held value, it typically goes hand in hand with not being a burden to others.
Some specific worries are the cost of health care and rising long-term care expenses. For clients concerned explicitly about this, we model these costs in our planning software and talk about whether or not saving and spending habits need to change or whether or not we need to consider long-term care insurance.”
Moreover, a recent Axios/Ipsos poll shows Americans believe they cannot rely on Social Security to cover their expenses during retirement. 62% of Americans who are not retired feel that Social Security will cover less than half of their costs. Just 37% of retired people say that Social Security covers less than half of their expenses.
According to the 2022 Social Security Trustees report estimates, retirees in 2034 will receive only 77% of their benefits if Congress does not update the program.
The EBRI survey indicates approximately 33% of workers anticipate retiring at 70 or later or never retiring.
According to a Transamerica Center for Retirement Studies report, 40 % of Generation X workers and nearly half of boomers anticipate retiring after 70 or not retiring at all.
Similarly, Axios/Ipsos’s retirement poll indicates that around 20% of Americans believe they will never retire due to financial worries. Most Americans who have yet to retire (52%) intend to relocate to an area with a lower cost of living upon retirement.
Retirement Planning Can Help Ease Concerns
Retirement is one of the most significant transitions in life. Retirees today face higher inflation, economic uncertainty, and political turmoil, in addition to the typical concerns of healthcare costs, living too long, running out of money, maintaining a certain standard of living, and being able to fulfill bucket list items. Unsurprisingly, this transition creates a lot of anxiety about preparedness for people approaching retirement.
The only way to address these concerns with high confidence is to complete a financial plan that measures the likelihood of success by modeling an individual’s income, expenses, growth of investments, debt payoff, and what-if scenarios that keep the potential retiree awake at night.
There is no golden rule for retirement, as too many variables from one person to the next can alter the probability of success. Completing a financial plan will help retiree know where they currently stand based on their goals and current finances and guide them on improving their likelihood of success.
The prospect of retirement is increasingly becoming a source of anxiety among Americans. Economic challenges, rising healthcare costs, and living expenses have led to growing concerns that they may never reach a financially secure retirement. With uncertain Social Security benefits and inadequate savings, the vision of a peaceful retirement seems more like an elusive dream than a reachable reality for many.
John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
Here are his recommended tools
M1 Finance: John compared M1 Finance against Vanguard, Schwab, Fidelity, Wealthfront and Betterment to find the perfect investment platform. He uses it due to zero fees, very low minimums, automated investment with automatic rebalancing. The pre-built asset allocations and fractional shares helps one get started right away.
Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Streitwise is available for accredited and non-accredited investors. They have one of the lowest fees and high “skin in the game,” with over $5M of capital invested by founders in the deals. It is also open to foreign/non-USA investor. Minimum investment is $5,000.
Platforms like Yieldstreet provide investment options in art, legal, structured notes, venture capital, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $10,000.