Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Person balancing on top of a dollar currency coin. Uncertain economy. 3D Rendering.

Retirement Planning > Spending in Retirement > Income Planning

Even Millionaires Worry About Being Able to Retire Comfortably: Natixis

Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Among U.S. investors with at least $1 million in investable assets, 44% are worried about being able to retire when they want to.
  • Applying the 4% rule to a million-dollar portfolio provides less income than most respondents are used to living on, Natixis says.
  • Inflation, rising interest rates and increasing health care costs are all weighing on future financial security.

This year is proving to be a tough one for those contemplating retirement, including many well-off individuals.

U.S. investors with $1 million in investable assets are preoccupied with their eventual ability to retire comfortably, according to survey data released Tuesday by Natixis Investment Managers.

CoreData Research conducted the survey in March and April 2021 among 8,550 respondents in 24 countries, including 1,617 individuals with at least $1 million in investable assets. These high-net-worth investors had a median $2 million in assets, including a median $650,000 in retirement savings.

Even though high-net-worth respondents plan to leave work at the relatively early age of 63, 58% of them acknowledged that they may have to stay on the job longer than they planned.

But that may not be so easy. Forty-four percent of these investors are worried that they may not be able to do so. Thirty-five percent of millionaires said “it will take a miracle” to achieve a secure retirement, while 42% said they are so worried about retirement security they avoid thinking about it all together.

Rising Costs, Low Returns

In addition to inflation concerns, rising interest rates pose a growing problem for both retirees and savers.

“A decade of historically low rates impeded investors’ ability to annuitize assets, leaving many retirees with a less-than-ideal income,” Liana Magner, Natixis’ head of retirement and institutional in the U.S., said in a statement. “It’s true that the overall level is still low from a historical perspective, but rates are now rising on higher government debt. Together with persistent fears of a global recession, we’re seeing new risks emerge.”

People who hope to retire need education, planning, tools and policy to meet the retirement crisis, Magner said.

Magner also pointed out that although inflation and low rates could soften, rising health care costs are affecting those already living in retirement. Sixty-five percent of those surveyed said health care costs and long-term care costs, such as nursing care, will have a big effect on their financial security in retirement.

4% Rule Blues

Natixis IM noted that the standard rule for retirement drawdowns has long called for the withdrawal of 4% of assets as income in the first year of retirement and then 4% plus the rate of inflation each year for future withdrawals.

But $1 million may not be the comfortable cushion many who use this rule might expect, especially as inflation continues to grow.

“A million may seem like a lot, but many people are surprised when they do the math and realize that 4% of $1 million is only $40,000 yearly,” Dave Goodsell, executive director of the Natixis IM Center for Investor Insight, said in the statement. “This is usually quite a bit less than these individuals are likely used to living on annually.”

Goodsell said this is why it is so important to work out all the assumptions and do the math early when making plans, and why professional advice is necessary.

Natixis IM further noted that the 60/40 rule, another longstanding investment principle denoting a portfolio of 60% stocks and 40% bonds, does not account for heightened and emerging risks to the equity portion or a low-rate environment, which is bad for bonds. Even as rates rise, it will take time for them to reach a comfortable level for generating consistent income for retirees.

In the meantime, 58% of high-net-worth respondents recognized that low rates will make it difficult to generate an income off their savings. Investors would likely do better to diversify their holdings, in consultation with a trusted financial advisor, Natixis IM said.

The “three-legged stool” of retirement funding — Social Security, employers and individuals — may also require a shift, it said. Amid concerns about the long-term viability of Social Security and rising public debt, 31% of respondents expect it to be difficult to make ends meet without Social Security.

(Image: Adobe Stock/ink-drop)


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.