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Retirement Reality Check

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What You Need to Know

  • Workers are uncertain about when they will retire.
  • They are uncertain about how much income they will need to get by.
  • They are also uncertain about Social Security.

While most people look forward to retirement, how they’ll actually achieve it remains unclear.

In a recent survey of American workers we uncovered a significant gap between workers’ desire to live a comfortable retirement and their confidence in being able to achieve this goal.

By taking a closer look at the responses of both workers and plan sponsors, we identified four trends that may be driving this mismatch.

Understanding these insights can help financial professionals better support plan sponsor clients and their participants.

1. When to retire looks fuzzier.

In the past, retirement was largely based on one factor — age.

Due to a number of new variables — like perceived unpredictability of Social Security, a decline in pension plans, or even the state of the world in light of the pandemic — workers no longer seem to have a firm grasp on timing.

For instance, one in five plan to retire based on a gut feeling, while around the same number (19%) don’t know how they will decide when to retire.

Perhaps due to this uncertainty, planned retirement age and actual retirement age might not match.

On average, workers plan to retire at age 65, which differs from the actual retirement age of 63.5.

In fact, over the last five years there’s been a notable increase in people leaving the workforce between ages of 60 to 65 according to our data.

Understanding the realities of the average retirement age and how participants attempt to project their retirement date can help plan sponsors better grasp the mindset of their workforce.

Providing education and calculators for workers, particularly those nearing retirement, can give workers added confidence and a clearer vision of the future.

2. Work no longer stops at retirement

Retirement of the past often meant a time to relax, start a new hobby, or spend more time with family.

While some of that still holds true today, it will often also involve some form of work.

Only a third (32%) plan to be fully retired, while the same number (32%) will take a phased approach.

Another one in five (21%) plan to work in retirement.

A closer look reveals the intent to continue working aligns more to the older Gen X and Baby Boomer generations.

Offering near-retirees a phased retirement could help all involved — the plan sponsor enjoys the benefits of the employees’ skills and tenure longer while the worker gets to test drive retirement a bit, which should help with the transition to having more free time.

Interestingly only 3% of retirees report being dissatisfied with their retirement once it begins.

This gives plan sponsors a powerful tool — information and snapshots related to retiree satisfaction.

Hearing about others’ positive view of retirement may encourage participants to consider firming up their own plans.

3. Retirement income needs are unknown.

One contributing factor to the gap between workers’ goals to live comfortably in retirement and their confidence in achieving it may come down to a lack of income planning.

Half say they’re either unsure of how much they should be saving for retirement or know they’re saving less than needed to meet their retirement goals.

Workers also admit they don’t know how and when to create retirement income from savings — or recognize that they may want guaranteed income to cover essential expenses in retirement.

Retirement income planning needs to become more realistic and comprehensive.

For instance, retirees often experience higher spending at the start of retirement followed by a taper.

Then growing health-related expenses in older age cause spending to increase again.

Planning should take this spending curve into consideration along with the impact of inflation.

Any plan for retirement should also show how guaranteed and non-guaranteed sources can work together to help create a powerful retirement income strategy that can boost confidence.

4. Social Security expectations remain unclear.

Both workers and retirees say Social Security remains the top income source for essential expenses in retirement, followed by pension or defined benefits plans and annuities.

But uncertainty around the availability of Social Security causes many workers to feel financial discomfort about retirement.

Complicating this, nearly half (46%) don’t know how to claim Social Security at the right time to optimize income.

It’s important workers have a grasp of how to maximize Social Security payments by understanding key factors like full retirement age and how benefits from a spouse or ex-spouse may have an impact.

Employers who encourage employees to develop a retirement income plan that incorporates Social Security strategies and other guaranteed income sources can help alleviate stress by making workers feel better prepared.

5. Offering retirement clarity.

Workers want to live a comfortable retirement and most retirees already there claim to enjoy it.

But only four in 10 plan sponsors feel their employees are doing a good job of preparing for retirement.

Even fewer (15%) say employees will have enough set aside when it arrives.

At a time when employers are already struggling to find qualified employees and concerned about increasing competition for talent, now may be the right time to share these insights with plan sponsors.

By encouraging them to add more value to their retirement plan(s), including things like retirement income planning, employers may secure a distinct advantage in recruiting and retaining talented employees.


Sri Reddy. (Photo: Principal)Sri Reddy is senior vice president of Retirement & Income Solutions at Principal.

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