Anecdotal and survey evidence shows that working Americans are deeply worried about their financial security in retirement, with a recent Fidelity poll finding only about half of Gen Xers were confident about retiring “on their own terms.”
Although 67% of savers expressed some degree of confidence in their retirement prospects, this figure was down by 7 percentage points from just a year prior — falling mostly because of the lingering effects of inflation and a persistently high cost of living.
It’s a worrying outlook, according to Jamie Hopkins, CEO of Bryn Mawr Capital Management, but a deeper look at the data suggests that there is room for optimism. Financial advisors have a lot of ways to help their clients plan more effectively for retirement, addressing spending and saving.
Hopkins makes this case in a video posted recently on LinkedIn. He examines some “really interesting statistics” drawn from the Fidelity research — including that people in retirement seem to be feeling much more confident than those who are preparing for life after work.
“Only 53% of Gen Xers actually believe that they are going to be able to retire on their own terms,” Hopkins observed.
At the same time, 70% of retirees say that retirement is going as planned. Similarly, Hopkins noted, 69% of retirees say that retirement is more enjoyable than they expected.
“So, you start seeing ... these disconnects of retirees saying, ‘Hey, you know what, [retirement] is actually going pretty well, and a lot of people heading into retirement saying, ‘I’m really worried about it.’”
Much of this contradiction, Hopkins said, stems from a lack of planning and clear expectations about life in retirement — both from a financial and a behavioral perspective.
Where Concerns Are Concentrated
While retirees are more confident than workers, Hopkins observed, they still carry a number of concerns.
“[For example], seven out of 10 retirees say inflation is eating away at their retirement savings,” Hopkins said. “This is a problem. Now remember, high inflation early in retirement permanently increases the cost of goods throughout all of retirement, so it’s not just a one-year problem. It’s a compounding 30-year retirement problem.”
Another issue identified by Fidelity is that 43% of retirees were surprised that Medicare covers less than they thought it did.
“I also see this is true with Medicaid,” Hopkins observed. “A lot of people are surprised that Medicaid and Medicare don’t cover all the long-term care and health care services they are expecting.”
Both pre-retirees and retirees are concerned about rising costs. Sixty-two percent of pre-retirees said that they are uncertain whether their retirement savings will last forever. A majority are unsettled by the rising cost of health care and uncertain what portion of their income will be covered by Social Security.
How Advisors Can Help
After reviewing these and other highlights from the Fidelity survey, Hopkins offers some suggested actions for fellow financial planners.
First, “plan for medical expenses in retirement, and plan for a higher inflation adjustments, too,” he said. “Next, understand both Medicare and Medicaid, pre-retiring, to understand what they cover. It’s different from our health insurance we typically have while working.”
Third, he said, find ways to respond to higher expected inflation, including by reassessing the appropriate risk level of clients' portfolios.
“For retirees, we’ve actually seen higher than average inflation over the general population for decades now,” Hopkins observed. “Part of that is going back to the medical [expenses]. It’s a big driver.”
Fourth, advisors should encourage their clients to work longer if possible.
“The more you can work, even six [extra] months, has a huge impact on your retirement savings and security,” Hopkins said. “It shortens the period you’re in retirement and the [early] drawdown you might have to pull from assets.”
Finally, Hopkins suggested, clients can try cutting expenses and balancing their lifestyle earlier in a way that “simulates” retirement.
“Start preparing a couple years before retirement to actually reduce your expenditures, get your quality of life in the order you want it,” Hopkins advised. “Test drive that retirement, so you’re actually ready when you get to retirement. ... For most of us, we’re going to have more control over what we spend than what we can bring in during retirement. So this gives us a little bit more power, a little bit more control, over our future.”
Jamie Hopkins. Courtesy photo
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