8 Predictions for Retirement in 2022

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8 Predictions for Retirement in 2022

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Retirement Planning > Spending in Retirement > Income Planning

8 Predictions for Retirement in 2022

By Ginger Szala

Slideshow December 28, 2021 at 12:08 PM Share & Print

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What You Need to Know

We will see more automatic IRAs and 401(k)s.

While inflation will spur people to rein in spending, it will also fall naturally as COVID continues hindering travel and entertainment.

COVID certainly put people on notice about the uncertainty of life, but there is also interest in lifetime protected/guaranteed income.

Retirement planning covers a lot of issues, including long-term care management, income decumulation and almost everything in between.

We asked several retirement experts what they saw on the horizon for 2022 and what advisors and their clients should expect in terms of the impact of these potential changes. Those weighing in are: Wade Pfau, Carolyn McClanahan, Jamie Hopkins, Marcia Mantell, Ted Benna, David Blanchett and Moshe Milevsky.

See the gallery above for their forecasts of what advisors should expect in the retirement business next year.

Related: What to Expect for Social Security in 2022

Ginger Szala
@gingerszalaink

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8 Predictions for Retirement in 2022

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1. The crisis in long-term care will get worse.
COVID-19 has made older adults more wary of going into nursing homes, but the reality is that the cost of retirement home living is growing, and there doesn’t seem to be a fix on the horizon, Jamie Hopkins, managing partner of wealth solutions at Carson Group, told ThinkAdvisor.

“There’s not a lot of proposals from a policy perspective; nobody’s solved it even intellectually yet, so that will continue to be a challenge for older Americans and their families,” Hopkins said.

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2. The move toward automatic IRAs/401(k)s will increase.
“Two things I hope to see during 2022 is for Congress to require all employers that offer a 401(k) to auto-enroll new employees to automatically increase their contribution each year,” said Ted Benna, who was key in developing 401(k) plans and remains active working with Congress to improve them. He also hopes “Congress will require all employers that don’t have a retirement plan to help their employees save for retirement and provide one.”

Hopkins sees a lot of burnout by human resources professionals from the pandemic; thus, their focus is more on filling vacancies than worrying about increasing retirement plan coverage for small firms.

“It’s time to stop messing around and just move forward; whether it’s a federal or a state [plan], we need to find an automatic and easier way for small businesses to get into the savings market for employees. It’s not rocket science; it’s just, how do we get people there?” he said.

Retirement expert Marcia Mantell agrees: “It’s time to find better ways to get workers saving, whether they have plans at work or only access to IRAs. … Make sure all [employees] know their at-home spouse can save in a spousal IRA. [Have] more in-depth education sessions in companies … including hands-on navigation through the retirement benefits online center.”

For those without access to plans, the president of Mantell Retirement Consulting said there should be “a concerted effort to move away from only saving [in] an IRA if there is a tax deduction, to message about saving in an IRA [that] is a critical avenue for having more options in retirement would be more helpful.”

(Image: Adobe Stock)

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3. Inflation will force people to rein in spending.
Almost every expert we contacted said that inflation will have an impact next year in several ways. Carolyn McClanahan, an advisor, physician and founder of Life Planning Partners, pointed out that “higher inflation will hopefully move people to take a tighter look at how they spend money. People have too many unnecessary subscriptions and recurring services that they often no longer use. Gym memberships are only one example — people have multiple music, movie and reading subscriptions. Are they really using every subscription they have?”

Moshe A. Milevsky, a tenured professor at the York University Schulich School of Business in Toronto, sees this another way . That the “growing intensity and discussion of inflation rates … will increase awareness of the gap between population inflation averages, such as the consumer price index, versus a client’s personal and unique inflation rate. … Personal inflation will take center stage.” He says the discussion will move on from CPI-U (urban consumers) or CPI-W (wage-earners and clerical workers) to CPI-ME.

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4. There will be a rise in (more) personalized portfolios.
Today, advisors might have a single set of models that vary by risk level, such as all bond, or a certain percentage equities, or something for high-tax investors, said David Blanchett, managing director and head of retirement research, PGIM DC Solutions, but “going forward, it’s important to have portfolios that are focused on different things,” he said.

For example, this may include “a set of portfolios focused on retirement, maybe some that are specifically geared towards inflation, [environmental, social and governance], etc.” He says that advisors will have to offer different models that are a lot more granular for a variety of clients. “As the cost of these more personalized options fall, other packaged products are going to become less attractive,” he said.

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5. Retirement will change.
Piggybacking on changes in client models is the vision that retirement will have different aspects as well. Wade Pfau, professor of retirement income at The American College of Financial Services, noted that “there will be growing recognition that retirees have multiple viable retirement styles, and advisors able to provide strategies that can resonate with more than one retirement style will be better positioned to serve more clients.”

Milevsky added that as the pandemic continues to hinder travel and entertainment, spending, too, will be lower.

“Financial advisors should prepare for clients who are in the retirement income phase but are slowing down their decumulation rate,” he said. “That excess money will either return to the original portfolio and nest egg that hatched it or will be distributed [to heirs] as early bequests. Either way, get ready for old money in a different kind of motion.”

(Image: Shutterstock)

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6. The COVID hangover will continue to affect planning.
“COVID put people on notice that life is precarious and unpredictable,” McClanahan said. “Financial planning has focused too much on predicting an unpredictable future at the cost of not maximizing joy in life in the present. We’ll see financial planning morph to help make sure people are happy in the present and help them create resiliency for whatever life throws their way.”

Due to the pandemic, and the high death toll at advanced ages, the "raison d’être" of annuities has lost some of its punch and efficacy, Milevsky said. He added that “the discussion of old age will have [to] transition from the fear of excess longevity towards a more balanced view of horizon uncertainty and how different types of insurance products can help with the financial cost of that uncertainty.”

Blanchett, however, sees an increased interest in lifetime protected/guaranteed income, especially due to uncertain markets and life spans. A trend started in 2021 with more products like this will likely continue, he says, and advisors “will increasingly get into the fold in terms of actively thinking about and recommending these products to retirees as part of a comprehensive retirement plan.”

(Image: Shutterstock)

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7. Expect more mergers between wealth managers and 401(k) advisors.
Convergence, or the large crossover where retirement firms have been acquiring wealth firms and vice versa, has been growing. Where there was a lack of retirement advice in defined contribution plans, that is changing.

Advisors on the wealth side have historically tried to get that DC money to roll over, while advisors on the plan side want it to stay. Due to this M&A crossover, however, “more advisors are playing both sides of that coin,” Michael Doshier, senior defined contribution advisor strategist at T. Rowe Price, noted recently.

Although the overlap of the two isn’t “as much as you would really think,” Hopkins said, “if you’re an advisor, and you haven’t looked at the offerings [of 401(k) plans], that is something you should do because they are better than they’ve ever been.”

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8. The return of RMDs may jolt some retirees.
The last required minimum distributions were in 2019 and have been put on hold during the pandemic. Due to the legislation, those who turned age 72 by July 1, 2021, must take their first RMD by April 1, 2022.

This could cause some concerns for those who haven’t had to take an RMD before, Hopkins noted. Further, the SECURE (Setting Every Community Up for Retirement Enforcement) Act 2.0, which he sees passing next year, will scale the age back to 75, which will cause some confusion on the due date and age requirements. He added, however, that by the time 80% of people reach age 72, they will have to take out at least the RMD “just to make it through retirement.”

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