Two years ago this month, Americans watched an unprecedented, rolling shutdown of life as they knew it.
Today, while the COVID-19 pandemic still lingers, many are getting used to a new normal–and are ready to shore up retirement savings that have been pummeled since 2020, according to Fidelity Investments’ annual State of Retirement Planning Study.
But amongst a tumultuous start to 2022, how to go about this rebuilding weighs heavy on investors’ minds.
The lead message is that while nearly 80% of Americans express confidence that they’ll be able to retire when and how they want, just one in four say they are less confident than they were before the pandemic. And with inflation continuing its march, 71% of Americans say they are very concerned about its impact on retirement preparedness, with 31% unsure of how to make sure their retirement savings keep up.
“With so much uncertainty in the world, people understandably have concerns on a variety of fronts, and ‘Are we there yet?’ has to be on the minds of many,” said Rita Assaf, Fidelity’s Vice President of Retirement.
However, the report did find optimism across generations:
- 65% of respondents say 2022 is the year they put the pandemic behind them and focus on the future, a number that increases to 74% among the next generation (Nex Gen) of investors;
- Almost 4 in 10 (38%) of Nex Gen also say they are more confident than before the events of the past two years regarding their retirement prospects, which is more than twice the number of Gen Xers (17%); and
- Lastly, for those who say the pandemic has negatively impacted their retirement plans, 29% of Nex Gen estimate it will take a year or less to recover—in contrast, only 18% of Gen Xers say the same.
Next generation of investors make wobbly decisions
While the pandemic touched every corner of the financial universe, investors still took certain actions to help with retirement decisions. Fidelity says many turned to robo advisors particularly among younger investors with 61% of Nex Gen saying they will use one to help navigate their next steps. In comparison only 35% of the general population say they’d do the same.
However, Nex Gen investors had some alarming reactions on retirement savings compared to the general population. More than half of the younger generation (55%) said that they put their retirement planning on hold during the pandemic, compared to 41% of the general population. And 45% of them didn’t see a point in saving for retirement until things returned to normal, a move that has shown to be the wrong one historically.
Additionally, the Great Resignation is also having an effect on younger investors. At least 80% of Next Gen say they are now more determined than ever to focus on their “passions and dreams.” But if cashing out their retirement is what’s going to fund the leap of faith, as 1 out of 5 who quit opted to cash out of their 401k, it could potentially have a devastating longer-term impact.
The fact that so many ‘Great Resignees’ emptied their 401ks is cause for concern, said Fidelity’s Assaf.
“Taking money out of your retirement accounts completely should be avoided unless the immediate need is critical and there are no other options, not only because of the tax implications, but also due to the impact on your retirement nest egg.”
It’s all about the plan
Unsurprisingly, the experts say that having a solid financial plan is what can soften the rough edges of investing. According to Fidelity, individuals with a plan in place:
- Feel more confident about being able to retire when and how they want (91% with a plan vs. 67% without);
- Are more likely to know how much money they’ll need to retire (84% with a plan vs. 56% without a plan) and when they want to retire (84% with a plan vs. 59% without); and
- Are more likely to say they know what to do to keep up with inflation (77% with a plan vs. 57% without) and are less likely to say they plan to retire later due to the pandemic (16% with a plan vs. 29% without)
“The good news is, although the pandemic impacted us in many ways, from a financial perspective, our study shows having a plan in place is one solid way to help you weather any storm,” summed up Assaf.
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
I want to make sure that I know what to do in the long run. It makes sense that I would want to get the proper retirement planning. That seems like a good way to ensure that I handle things properly.