You might remember that the World Economic Forum recently estimated that 65-year-old Americans could outlive their retirement savings within nine years—leaving the average American man with a savings gap of 8.3 years (10.9 years for women).
If this is true, it’s no wonder 80% of non-retired Americans express anxiety that their savings will not provide them with enough income to live in retirement, just as the U.S. is only five years away from having the most 65-year-olds in its history according to the U.S. Census Bureau.
A survey of 3,119 U.S. adults released at the end of July by the Alliance for Lifetime Income found eight in 10 non-retired Americans indeed have retirement anxiety, fearing their savings may not provide enough to live on for the rest of their lives.
The study found 63% of Americans have no source of protected lifetime income—such as pensions or annuities—other than Social Security. Eighteen percent of Americans indicated that they are “extremely” anxious, and 26% and 36%, respectively, are “moderately” and “somewhat” anxious about their financial preparedness.
The survey further shows a fundamental disconnect between the general awareness of retirement preparedness—40% of non-retired Americans say that “how much income they’ll have in retirement” is the most important question they face about retirement—and the fact that 80% of non-retirees admit they lack a specific financial plan that they follow.
The Alliance for Lifetime Income, a nonprofit funded by life insurers and asset managers to promote annuities (and sole sponsor of this summer’s Rolling Stones U.S. tour), conducted the survey in May to spotlight the causes of a retirement income shortfall confronting millions of Americans.
“At the same time that two-thirds of Americans are telling us that they’re optimistic about retirement or the next phase in life, only 42% of non-retired Americans believe their savings and sources of income will last their lifetime,” says Jean Statler, Executive Director of the Alliance for Lifetime Income.
Sources of anxiety
Forty-five percent of non-retired Americans indicate they are extremely or moderately anxious their savings may not provide enough to live on in retirement. Conversely, 71% of retired Americans believe their savings and income will last their lifetime—which the Alliance says is evidence in part that many of today’s retirees are among the last to benefit from a pension. Today, the Alliance says only 17% of private sector workers have access to a pension.
Those who expressed either severe or moderate retirement anxiety about the adequacy of their savings attribute their concern to several factors, beginning with healthcare. Seventy-five percent cited the rising cost of healthcare, while 65% worry about an unforeseen healthcare need arising.
The retirement planning deficit
Further evidence of the retirement planning deficit is that only 28% of non-retired Americans have made an effort to determine their likely monthly income needs in retirement, which is perhaps the single most important question when considering retirement income needs. Even among those closest to retirement—Americans between 55 and 74 years of age—only 43% have made such a calculation.
“Planning for retirement is overwhelming for most Americans—which is why all too many shy away from running the numbers—preferring to guess at what they’ll need instead,” says Jean Chatzky, educational fellow with the Alliance and founder and CEO of HerMoney. “The key is to start with the tangibles: the type of house you think you’ll live in (and whether it will be paid off), the car you’ll drive, how often you go out to eat, what you’ll need for healthcare above Medicare. Add it up and figure out how much Social Security will or won’t cover. Those are the first steps to figuring out how much retirement income you’ll need to provide for yourself.”
Barriers to retirement preparedness
Six in ten non-retired Americans (61%) cite financial constraints—either lack of money, debt or the need to save for major expenses (car, home or education)—as one of their top three barriers to taking more actions to prepare for retirement.
Four in 10 (44%) mention the uncertainties—too many unknown factors or that it’s too far away. One third (35%) are not making the time to plan and prepare for retirement because they are either focused on everyday demands or feel they don’t have enough time. One in seven (14%) don’t know what to do to plan for retirement, while one in six (16%) say they are preparing for retirement.
While not a barrier to retirement planning, the data from the Alliance study underscore that a key variable affecting the outlook (and retirement anxiety levels) of non-retired Americans is their social and advisory support structures. Most non-retired Americans indicate that they rely on family and friends when making important decisions related to their finances (68%), emotional needs (91%) or health related (80%) questions.
Non-retired Americans also have professionals to offer expertise. However, while more rely on professionals when making decisions about their health (93%) versus family and friends (80%), the opposite is true for finances. Just 60% say they have access to professionals to offer expertise about finances, though only half that number (26%) indicate that they actually work with a licensed financial professional.
“Although most of us feel comfortable relying on a medical professional for health advice, fewer rely on a financial professional for retirement advice,” says Michael Finke, Professor and Frank M. Engel Chair of Economic Security at The American College of Financial Services. “This likely supports the other finding that retirees feel they can adapt if they live too long or markets don’t perform as expected. I would rather retirees get the guidance from retirement planning experts who can help them manage their nest egg and determine how much they can safely spend so they don’t have to worry about whether their savings will run out.”
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
