Retirement Expectations and Realities Largely Misaligned Among Participants
New research from MFS shows disconnects between how participants are anticipating their retirement and the realities they will ultimately face.
The Q2 DC Pulse, published this week, finds that workers continue to overestimate the amount they’ll receive in Social Security benefits. According to the survey, retirees receive nearly 41% of their income from Social Security, but many expect more. Prior findings from MFS’ 2024 Global Retirement Survey showed that respondents believe they’ll collect anywhere between less than 10% of their retirement income up to over 50%. In reality, 94% of retirees surveyed say Social Security is a major income source.
The findings emphasize the need for retirement planning advice and an understanding on how future beneficiaries could better prepare for changes to retirement income, as Social Security is projected to cover only 77% of schedule benefits beginning in 2033. The research shows that roughly 80% of workers and 70% of retirees fear significant changes to the U.S. retirement system, including scheduled reductions in benefits.
Jeri Savage, retirement lead strategist at MFS, highlights how the research underscores the efficacy in helping beneficiaries navigate personal choices when selecting when to claim Social Security benefits.
“How a participant approaches retirement and how a retiree lives in retirement are personal choices. When to claim Social Security is also a personal choice. To us, these complex decisions highlight the value and importance of advice near and in retirement,” she said to 401(k) Specialist. “Rather than focus on potential insolvency, which could be years away to reduced, not depleted benefits and assumes there is no intervention to solvency before then, we would continue to highlight this point and stress the importance of the advisor’s role in helping their clients understand the right Social Security claiming strategy for them, given their personal characteristics.”
Other findings in MFS’ research emphasize the importance of emotional preparedness prior to retirement. While 75% of respondents say they immediately stopped working when stepping into their post-career lives, 61% of participants note a preference for a gradual transition with reduced hours or smaller roles.
Despite over half of respondents preferring this path, only 22% of plan sponsors currently offer a program that allows employees to slowly transition into retirement.
To support emotional preparedness for near-retirees, Savage recommends utilizing guidance to better plan for the future and the unexpected, including rising healthcare costs, emergencies, and the possibility of leaving the workforce ahead of retirement. Forty-nine percent of respondents to the research state they’ve had to leave the workforce earlier than expected.
Working with clients in-person also provides a human connection that could reduce tensions and overall fears about retirement, Savage adds.
“When you ask both participants and retirees about their preferences for receiving advice, both overwhelmingly would like to speak to someone in person,” Savage concluded. “I think this data highlights the importance of advice, the value that participants derive from meeting in person with an advisor and how that could help address the emotional preparedness side of retirement, not just being financially prepared.”
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.
