Top Financial Fears Impacting the Middle Class
A new TCRS report highlights the leading retirement fears and solutions for middle class workers
Just one in five middle class workers are confident in their ability to retire, showing a bleak outlook of retirement for many in the U.S. Still, near and future retirees can mitigate long-term concerns by implementing short-term planning strategies, finds a new report by the Transamerica Center for Retirement Studies (TCRS).
The firm’s latest report, “The Retirement Outlook of America’s Middle Class,” surveyed 5,700 respondents defined as the middle class, with household incomes ranging between $50,000 and $200,000. It examines the middle class’s health and wellbeing, employment status, personal finances, and retirement outlook, while also providing recommendations for Congress and public policy to further support financial and retirement attitudes.
As the largest social class in the U.S, middle class workers have been lauded for their stability. A 2024 study by insurance, investment, and technology provider TruStage found that 92% of respondents to their survey said they could cover all their monthly expenses. Over half were also allocating at least some of their money towards savings. In all, 71% of Americans described their financial situation as “good.”
Despite this, a growing number are uncertain about the future state of their retirement. TruStage’s report found that while still on track with their retirement goals, 43% of respondents report feeling unprepared for retirement, as many continue to juggle caregiving responsibilities, healthcare, day-to-day costs, and other priorities. Transamerica’s report found that among the top competing financial priorities are paying off debt (59%), saving for retirement (49%), building emergency savings (42%), saving for a major purchase or life event (31%), and covering basic living expenses (31%).
“Only 21% of people in the middle-class said they knew a lot or had a strong knowledge of personal finance. In many ways, how you manage your money makes as much or even greater of an impact in how much you save,” said Catherine Collinson, CEO and president of the Transamerica Institute and TCRS, in an interview with 401(k) Specialist. “So, by learning more, you can make more informed decisions and optimize your savings in a way that would not happen without that knowledge.”
Below are the top financial-related fears impacting the middle class, and solutions on how workers can keep their worries at a distance.
Financial Disconnect
In order to understand their retirement goals, the middle class has to fully engage in retirement planning, notes the TCRS. This includes working with a retirement plan advisor in forming an official, personalized retirement strategy and even speaking with family about finances and financial goals. According to the findings, only 24% have organized a financial strategy for retirement in the form of a written plan, and 17% frequently discuss saving, investing, and retirement planning with family and close friends.
Workers can utilize a financial advisor, along with employer-recommended workplace tools, to gain insight on their retirement goals and how to achieve those targets, said Collinson.
Studies have demonstrated the positive effects that financial tools and resources can have on employees. A 2023 Bank of America report found that retirement planning is a top benefit for workers. Seventy-four percent of respondents to that survey said investing in a workplace retirement plan would help them build their retirement nest egg, with 61% contributing enough to reach their employer match.
Now, plan sponsors and advisors can help participants understand the significance behind other financial wellness tools that could further support their finances.
“The first striking recommendation or insight that came out of the survey report is to get savvy about personal finance,” she added. “Given what’s at stake, there are so many tools and resources available, especially if you are offered a plan by your employers, to learn about financial wellness, savings, and budgeting, because it can make a huge difference. Having a really sound approach to financial planning, budgeting, goal setting, knowing when to dial up savings, can really help guide you to not only make good long-term decisions but enjoy life along the way.”
Health Challenges In and Out of Retirement
One main priority for individuals within and outside of retirement are the health challenges that could pop up at a moment’s notice. According to TCRS, healthcare and the long-term costs associated with it are among the greatest retirement fears for the middle class. Specifically, 40% say they are worried about declining health that will require long-term care, 33% are anxious about cognitive decline, dementia, and Alzheimer’s disease, and 32% are nervous about possible long-term care costs. In fact, out of all respondents surveyed, just 14% are “very confident” in their ability to afford long-term care.
In the workforce, these implications can be two-fold, explains Collinson. “As adult children, it’s likely they will be called upon to be an unpaid caregiver, and that responsibility can come at a time when they need to be focused on saving and planning for their own retirement. It can actually prove to be a setback for them,” she said. “And as each day passes, we get a day older, and down the road, many of us may need long-term care or support.”
This is especially true for female workers. According to Deloitte Consulting, female patients collectively spend $15.4 billion more on out-of-pocket medical expenses annually compared to their males due to unique and expensive medical needs, including egg freezing and in-vitro fertilization (IVF), health challenges related to menopause, and pregnancy and post-partum medical needs. Female workers are also likelier to live longer than men.
The proliferation of high-deductible healthcare plans, or health savings account (HSA) plans, can offer a lifeline for participants daunting on expensive medical costs. Such plans offer participants triple-tax benefits, catch-up contributions beginning at age 55, and other opportunities to use those funds for retirement savings or future healthcare needs.
Working beyond traditional retirement age
More middle-class workers anticipate working past their full retirement age (FRA). According to the TCRS, among those who are not yet retired, almost half of people in the middle class (49%) expect to work beyond the traditional retirement age, including 34% who expect to retire after age 65 and 15% who do not plan to retire.
More than half (52%) also plan to continue working after they retire, in an effort to afford their retirement. While 45% expect their primary source of retirement income to come from 401(k)s, 403(b)s, or individual retirement accounts (IRAs), 27% say Social Security will be their leading source of income. This is even more of a reason for Congress and policy workers to form a solution on Social Security’s impending insolvency, notes Collinson.
“If there is going to be reform that is going to affect someone’s benefits, it’s better that they get nine to 10 years notice than four years notice, because retirement planning is a long-term commitment and if you’re nearing retirement and operating on one set of assumptions and a major variable change shortly before retirement age, it doesn’t give you much time to adjust your plans,” she said.
Another growing source of income are annuity options, which have piqued the interest of middle-class Americans in recent years. A 2022 Survey of Owners or Individual Annuity Contracts, commissioned by Greenwald Research and the Committee of Annuity Insurers, found that middle-class Americans were the likeliest to take out an annuity.
It’s a viable option for workers, but as with any other financial product, Collinson underlines the importance of working with financial professionals to understand whether a lifetime income tool is the best fit. “For those looking for some tax-advantages, certainly annuities and other guaranteed lifetime income options are in the mix,” she said. “The key is that [participants] do their homework and understand which is best for their situation.”