More than half of workers ages 42 to 76 aren’t saving enough for retirement, and most aren’t sure they can turn that around, according to a new Goldman Sachs survey.
In contrast, most younger workers express bright outlooks, most of them confident they’ll have enough money to retire at a customary age.
But, a cautionary tale:
About half of the retirees in the study had to leave the workforce earlier than planned and now live on less than 50% of their last regular paycheck.
They’re worried they don’t have the cushion to adapt to inflation, if post-Covid-19 price surges don’t abate, the Goldman Sachs Asset Management survey of 1,566 people found.
As a result, Goldman Sachs is advising investment managers to focus on ways to raise both retirement savings and client confidence to better control their financial futures.
“Americans are facing a new reality, causing many to rethink what retirement looks like,” says Joe Duran, head of Goldman Sachs Personal Financial Management.
The Retirement Survey & Insights Report 2022 released Wednesday studied 1,566 people across the generation spectrum.
When road to retirement gets bumpy
Among working baby boomers, born 1946 to 1964, 53% said they haven’t saved enough for retirement. Still, just 30% of those 53% were pessimistic about their financial future.
For Gen Xers, born 1965 to 1980, 51% felt they’re behind in savings, but 40% of those 51% felt they’ll never reach financial goals for their senior years.
Only 11% of working boomers and 12% of Gen Xers were “very confident” they’ll ever meet their retirement goals.
The investment managers say a “vortex” of challenges right now are keeping income flows from retirement accounts. These include credit card debt, student and car loans, saving for kids’ colleges, caretaking and supporting parents, time lost from work because of Covid-19 and rising monthly expenses.
“Some challenges are common life events, such as buying a home or starting a family,” says Michael Moran, senior pension strategist at Goldman Sachs Asset Management, “but market volatility and high inflation are beyond individual control.
“It’s not a question of if, but when, someone will be impacted,” Moran says.
The most common unexpected events that threw retirees for a loop were understanding how much they can spend on their retirement income (29% of those surveyed), health care costs (23%), housing and home maintenance costs (22%) and supporting family members (11%).
When time is on your side
Younger generations have brighter outlooks amid the gangbuster jobs market and rising wages.
Four in 10 millennials and 47% of Gen Z increased their retirement contributions during the past year. Millennials were born from 1981 to 1996. Gen Z was born next, to the early 2010s.
Just 34% of millennials and 27% of Gen Z surveyed said they’re behind schedule in their retirement savings.
In fact, 31% of both eras were “very confident” they will meet their retirement goals, despite 33% of millennial and 32% of Gen Z respondents withdrawing money from their 401(k) plan without penalty to cover expenses during the Covid-19 pandemic.
While 81% of millennials and 72% of Gen Z, and even 65% of Gen X, said they would repay their 401(k)s within three years, 58% of working boomers said they would not.
Overall, 37% of working respondents expect the effects of the pandemic to delay their retirement.
When early retirement isn’t the plan
While 51% of retirees surveyed said they live on less than half of their pre-retirement annual income now, 29% reported that they make do with even less than 40% of prior income.
Most advisors suggest saving enough to retire with at least 70% of working income to sustain their usual standard of living, the company says. Only 25% of retirees surveyed estimate they have saved enough to do that.
Of the 599 retirees in the survey, 56% left the workforce earlier and with less savings than they had planned — almost half of them because they had to, not because they wanted to.
It’s a one-two punch that the last paycheck also ends regular contributions to retirement investments.
The company says top concerns for retirees rose from last year’s study in each:
- Inflation: 71%.
- Health costs: 51%.
- Social Security reductions: 46%.
- Running out of money: 44%.
As Social Security is on the chopping block for some candidates in November’s mid-term elections, 76% of the retirees surveyed said they want at least half of their income to come from guaranteed sources, primarily their Social Security benefits. Yet, only 55% said they achieve that now.
Health was the reason for 23% of them to retire early. Eleven percent lost their jobs, and 9% had to leave their jobs to care for family.
Retirees need more income
Generating retirement income was a top challenge for retirees in the survey.
The preference for part-time work rose notably from last year’s report. One-quarter more retirees this year want part-time work. The survey was conducted in July and August, amid volatile markets.
Other retirees, 42%, said they’re spending less in retirement than anticipated, and 22% are spending more.
“A clear theme from our findings is retirement income uncertainty,” Moran says. “Inflation is the top concern, but generally most of the concerns we inquired about were up relative to last year’s report, including future health care costs, potential future reductions in Social Security, running out of money, and becoming a financial burden on family members, to name a few.
“Surprisingly, despite inflation being a top concern, income that is inflation-protected ranked fifth out of eight in terms of most important retirement income features,” Moran says. “We believe this uncertainty is changing retiree behavior in hopes of preserving their savings for longer, including a surge in interest for part-time work in retirement and lower overall spending.”
Almost all — 95% — of respondents said they need professional financial help to successfully manage their retirement savings.
They cited three top areas in which they seek advice:
- Generating income: 34%.
- Understanding how long their savings will last: 32%.
- Understanding if savings are on track and, if not, how to adjust: 29%.
How they get advice matters to them, too:
Among workers, 38% said they prefer in person, phone or video conferencing with a financial advisor. About 28% prefer digital or technology-based advice alone. The middle 34% are open to both.
“Advancements in technology … (provide) them the power to personalize the retirement planning experience for plan participants” in the defined-contribution plans that employers have been offering instead of defined-benefit plans, says Chris Ceder, senior retirement strategist at Goldman Sachs Asset Management.
Qualtrics Experience Management surveyed 1,566 people, including 967 working individuals across generations baby boom, Generation X, millennial and Generation Z, and 599 retirees ages 50 to 75.
Goldman Sachs Group Inc. (NYSE: GS) of New York was founded in 1869 and maintains offices in all major financial centers around the world. Its primary investment arm, Goldman Sachs Asset Management, manages $2.5 trillion in assets under supervision globally for institutions, financial advisors and individuals.
Linda Hildebrand is a longtime newspaper editor and consumer-action reporter.