Recent research from the Transamerica Center for Retirement Studies titled ‘Wishful Thinking or Within Reach? Three Generations Prepare for Retirement‘ provides some interesting findings for people planning for their retirement, employers offering employees benefits for saving for retirement, and policymakers creating better methods and incentives for saving for retirement. Financial advisors, although not listed as one of the groups since the study was focused on workers, can also play a key role in better preparing workers (clients) for the financial realities of retirement. Each of these four groups plays a vital role in developing a better strategy for being more prepared for the financial and non-financial realities of retirement.
The study, published in December of 2017, looks at workers retirement thoughts and preparedness from their research of three unique generational perspectives, Millennials (born 1979-2000), Generation X (born 1964-1978) and Baby Boomers (born 1946-1964). The results of the survey questions whether workers visions of retirement are within reach and if workers are adequately preparing themselves for a successful retirement.
Below are some of the key findings that point out the challenges that workers have regarding retirement. These findings show that not only is there a huge need to better prepare people for retirement, but also an opportunity for creating awareness and communicating the disconnect and unrealistic goals and vision workers have for retirement. In addition, it is important to communicate the likelihood (reality) of reaching their retirement goals and vision and how planning, taking action and monitoring of the plan, particularly early in their work years, can help alleviate many of these challenges and concerns. Here are some of the key challenges. Percentages listed are across all three groups unless otherwise noted.
- Retirement savings is low, especially given workers responses in the survey. Baby Boomers have saved an estimated median of $164,000. Only 54% of workers agreed they have saved enough to support their vision of retirement.
- Travelling is workers most cited retirement dream (70% of workers). However, travel may be out of reach for many people. Only 58% (63% of Boomers) of workers are very or somewhat confident that their current financial situation will allow them to meet their travel goals in retirement.
- Workers most cited fear in retirement is outliving their savings and investments (52%), reduced or eliminated social security (48%), declining health that requires long-term care (44%), not being able to meet basic financial needs (42%), lack of access to adequate and affordable healthcare (38%), cognitive decline including dementia or Alzheimerâ€™s disease (35%).
- Almost one of every five people said their fears included finding meaningful ways to spend time and stay involved (21%), feeling isolated and alone (20%), being laid off- not being able to retire on my own terms (18%).
- More than half of workers expect to work past age 65 or do not plan on retiring (53%) (66% of Boomers). Over half of all workers (56%) plan to work after they retire, 42% of these part-time and 14% full-time.
- Almost half of all workers envision a phased retirement (47%) where they will reduce their work hours or in a different capacity that is less demanding or brings greater personal satisfaction. 23% expect to immediately stop working and 10% arenâ€™t sure. 20% plan to continue working as long as possible or until they cannot work anymore.
- More than half of all workers (54%) think they will stay with their current employer after age 65 or as they transition into retirement. 68% of Baby Boomers expect to do this.
- Across all groups of workers today, respondents plan to live to a median age of 90. This implies a longer time spent in retirement. For many, a much longer time!
- 30% of workers (39% of Baby Boomers) expect their standard of living to decrease in retirement.
- Workers today estimate they will need $500,000 (median) to fund their retirement. Millennials estimate they will only need $400,000 (median) Baby Boomers (39%) and Generation X (40%) are more likely than Millennials (30%) to say they will need $1 million dollars or more at retirement.
Although there are several additional findings from their study, the ones highlighted above are interesting for a couple of reasons. First, by connecting many of these findings, retirement is not going to play out the way many have envisioned. Second, because of this disconnect, there are many opportunities for employers, policymakers and the financial services industry to better prepare people for retirement. Letâ€™s look at a couple of examples.
The biggest challenge for people preparing for retirement is that many are nowhere near being financially ready to retire with Baby Boomers having only saved a median of $164,000. Almost half of those surveyed cited outliving their retirement savings as their biggest fear in retirement. Even those who have saved considerably more may well not be financially prepared to do what they want to.Â Do people have a clear idea of what they want to do in retirement? This is a clear opportunity for all parties to provide better education, opportunities and advice for people to live a confident and comfortable retirement.
Although many people plan to work past retirement, many believe that they will be able to continue to work at their current employer and almost half (47%) think that they will be able to create a phased retirement to be able to continue to work part-time. 68% of Baby Boomers expect to stay with their current employer after age 65. While some may be able to do this, many will not. Employers may have plans that donâ€™t include as many older employees and there likely are not as many phased retirement options as employees believe. The key for employees is to have a plan, have options for revising the plan if needed, and to be flexible and open to changing their plan.Â Are we helping people with creating this type of plan for retirement, much of which has little to do with money?
From the points above, you can also draw similar additional conclusions and opportunities to better prepare people for life in retirement. Simply put, people are unprepared for both the financial and non-financial aspects of retirement. Are your clients prepared? Research from the World Economic Forum shows that by the year 2030 (only 12 years away), nearly 20% of the population in the United States will be age 65 or older.
With such a large number of people over age 65, this will create a number of challenges for a large number of the survey respondents who believe they will be able to work, either full-time or part-time, in retirement. There will also be a large number of others in this age group also wanting to work. How will employers respond to a larger ageing workforce? Again, a valuable opportunity for making people (workers, clients) aware of a potential challenge to their â€œplanâ€ for retirement. Their plan may need to be readjusted for them to reach their ideal retirement.
The Transamerica study concludes with recommendations for Workers, Employers and Policymakers. I also believe that financial services professionals can also play a huge role (and should) in making retirement more successful for their clients. Through a combination of education, particularly among younger workers, expectation setting, monitoring, and accountability to the agreed upon plan, more people can be prepared to live and do the things they want to in retirement.
It will take tremendous effort from each of these groups to improve future retirement preparedness and confidence. What role can you/your firm play to make this happen?