Consumers have been in a state of panic since 2020. First, the onset of COVID-19 sparked a world-wide pandemic that teetered through 2021 and 2022. This year, participants are facing yet another debacle: a looming global recession.
The environment has been stressful for consumers, to say the least. According to Nationwide’s Advisor Authority survey, just 39% of investors surveyed are optimistic about their 12-month financial outlook (a 10% drop relative to last year). Even financial advisors and professionals are feeing anxious—48% say they are optimistic, compared to 63% in 2021.
Continuous recession talk spark fears
Much of this pessimism is driven by constant talks of a rumored global recession in 2023. Fifty-four percent of investors in the survey expect a rise in volatility within the next 12 months, while 74% fear a recession later in the year. Eighty-two percent of advisors and financial professionals expressed concerns over an impending recession.
Eric Henderson, president of Nationwide Annuity, believes the endless reminders of a potential recession have pushed fears onto consumers and advisors, even if the downturn is expected to be brief. “I think this has been the most pre-talked about recession ever,” he said in an interview with 401(k) Specialist. “We think it’s going to be short-lived, but we’ve been talking about it for well over a year now.”
He notes that such attention does prepare participants and advisors to consider a short- and long-term plan. According to the survey, more than half of investors expect increased volatility over the next 12 months, giving them time to devise a strategy with their advisor.
“Given that [the recession] has been previewed for over a year and it’s expected to be shorter, that might be easier for some folks to do,” he added.
Contrasting views with retirement planning
“Advisors are much more likely to ‘stay the course’ versus investors.”
Eric Henderson, Nationwide
Given the current environment, some participants may feel the need to cut savings to afford basic expenses. This is especially true for individuals who have been laid off or are unemployed. In these situations, retirement savings are generally among the first to go.
According to Nationwide, advisors and investors are conflicted in their financial planning strategies. While 44% of advisors counsel clients to contribute more to an employer-sponsored defined contribution (DC) plan, a smaller number of investors (20%) are currently doing so. Participants were also less likely to manage investments from a conservative standpoint (27%) and are delaying Social Security benefits (17%).
“Advisors are much more likely to ‘stay the course’ versus investors,” Henderson said. “There is a significant percentage of investors who will move more reactively to what’s going on in the market. Some people lose their jobs, they can’t afford things, and they must make decisions they wouldn’t make otherwise.”
As a result, the survey found 47% of investors anticipate retiring around the same time as initially planned, while 20% will retire later than expected.
Staying the course
By working with an advisor, participants can lessen the need to curtail their long-term savings without impacting short-term needs and grows their confidence, says Henderson. Eighty-nine percent of participants surveyed said having a plan in place for their investments helps them feel better in control, and 87% said it increases their confidence with investment decisions.
“That’s why it’s important to work with an advisor who can say, before we make a really quick decision, let’s think about where we want to be five, 10, 20 years from now and make a decision based on that, along with what’s going on currently,” Henderson said.
“The advisor’s role is to help the client step back, take a breath and look at the broader picture. For your short-term money, maybe some of these reactive things are the right thing to do. For your longer-term money, you want to have a different plan there,” he continued. “The advisor can help clients understand what the different products, solutions and tools are to make sure that they achieve both outcomes.”
SEE ALSO:
- Employees Dip into Retirement Funds, Cite Inflation and Market Volatility as Key Factors
- Most Americans Coping with Inflation By Cutting or Halting Retirement Contributions
- Despite Remaining Optimistic, Advisors Report Fears Over Inflation and Investment Returns
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
