Just How Stressed Are Retirement Savers?

What You Need to Know

A significant percentage of savers describe their financial situation as fair or poor, survey data shows.
Stress isn’t necessarily translating to poor investor behavior, according to John Hancock exec Wayne Park.
In Park’s view, the educational efforts of advisors and retirement plan providers are clearly paying off.

It is a basic principle of behavioral psychology that how people behave tends to be driven more by how they feel than by what they know to be true in a theoretical sense. This is especially the case in the world of investing and personal finance — and a good portion of retirement savers are feeling stressed today.

Such high levels of stress would make one think that a big proportion of savers must be acting on their feelings, perhaps by pulling money out of depreciated stocks or fleeing toward safer (and highly priced) securities at just the wrong time.

However, as Wayne Park, CEO of John Hancock Retirement, pointed out in a recent interview, financial advisors seem to be doing a good job helping to ensure that the stress levels don’t manifest in poor investor behaviors. This view, Park explained, is based on the firm’s latest survey data and retirement plan participant behavior report.

Clear Commitment to Saving

According to the research, retirement investor behaviors have remained stable over the past few years, even as one would expect to see more ill-timed trading and a retreat from consistent savings. As Park explained, every retirement saver’s financial situation is different, but the economic environment of 2022 and 2023 clearly stirred up some big concerns.

Stock market volatility, inflation and interest rates were all worrying factors, he noted, and the silver lining of the COVID-19 pandemic — the extra money that many households had been able to stash away — was beginning to fray. According to Park, this led to a possible dilemma for workplace retirement savers. Would they dip into their account or cut back on contributions to relieve their current stress? Or would they try to keep their savings intact and working for them?

Happily, Park said, the answer to these questions seems to be “no,” and “yes,” respectively. He argued that financial advisors and retirement plan providers deserve the most credit for this. As Park emphasized, advisors and service providers can’t make clients’ stress simply disappear, but they can do a lot to mitigate its negative effects on investing and saving behavior.

Stress Levels Remain High

The John Hancock Retirement data shows about 4 in 10 retirement savers describe their financial situation as only “fair” or “poor,” the highest ratio seen in four years of surveys. But has this state of affairs driven retirement account leakage or reductions in savings?

One way to help answer this question, Park said, is to look at defined contribution plan loans and hardship withdrawals.

“On one hand, tapping into plan balances in these ways they can provide some financial aid for participants who may be facing pressing needs and have few other available resources,” Park explained. “At the same time, however, they can derail months or years of retirement savings progress.”

Other Savings Surprises

There are a few other surprisingly positive findings to highlight in the report, according to Park, including that, for every contribution decrease the firm processed during the study period, it handled nearly two contribution increases or new enrollments.

The average increase for established participants who raised their contribution was 3.2% of salary, the average initial deferral for new enrollees was 5.2%, and the average decrease was 6.1%.

Of course, despite all the positive news, Park said, seeing more than a third of participants decreasing their contribution reflects a degree of financial need. He also suggested that the increase in deferrals could actually reflect people’s worries about higher inflation today and into the future, which could compromise their lifestyle ambitions in retirement.

Pat on the Back for Advisors

Asked what may be behind the general consistency in investor behaviors despite the higher reported levels of stress, Park pointed to the “great ongoing work of the financial advisor community.” He also cited educational efforts by retirement plan providers and even the financial media.

“A lot of our findings were impressive and surprising to see,” he said. “On the one hand, people are voicing that stress and emotion, but they aren’t acting on it. The advisor community deserves a lot of credit here. It’s all about the solid messaging about keeping the long-term view front of mind and not acting on the emotion. I think the discipline is impressive.”