The Cost of Retirement’s Gone Up

A new study indicates that Americans now expect to retire later than they did a year ago, in the wake of a sharp drop in their retirement savings and changing expectations of how much of a nest egg they will need.

Northwestern Mutual’s 2022 Planning & Progress Study revealed that Americans’ expected retirement age has risen from 62.6 in 2021 to 64 this year. Fueling that change is the 11 percent drop in U.S. adults’ average retirement savings over the past year, from $98,800 to $86,869, as well as the growth in their expectations for how much money they will need in retirement—a striking 20 percent increase to $1.25 million. The study, which was conducted by the Harris Poll via an online survey in February 2022, includes responses from more than 2,300 Americans ages 18 and older.

Nicole Stokes, managing director of Northwestern Mutual in Tampa, says the changes in the study’s responses between 2021 and 2022 come during a period of uncertainty and volatility, which has caused many Americans to adjust their assumptions and take a more pessimistic view of the future.

“People are undoubtedly feeling a strain on their finances in the current landscape,” Stokes says. “Between inflation and market declines, many are having a harder time saving and accumulating wealth. That, in turn, is likely impacting timelines, causing some to delay when they think they will have enough to retire comfortably.”

Approximately 43 percent of respondents do not expect to be financially ready for retirement when the time arrives, and 45 percent said they can see a possible future when Social Security does not exist. Meanwhile, 33 percent of those surveyed believe that there is a better than 50 percent chance that they will outlive their savings. Of those with that concern, only 22 percent have put together a financial plan in response.

Overall, 25 percent of respondents said they anticipate retiring later than they had expected before the pandemic began. Top reasons for delaying retirement included wanting to continue to work and save money (59%); concerns about rising costs, including healthcare and unexpected medical costs (45%); and having had to dip into their retirement savings (24%).

“It’s one of those questions on so many people’s minds: How long should I expect to work in order to save enough for retirement?” said Christian Mitchell, executive vice president and chief customer officer at Northwestern Mutual, in a press release. “It’s really difficult to answer because there are all kinds of considerations to factor in. But too many people grapple with it in a bubble. With greater clarity, you can make a more confident call, and getting professional advice can provide that clarity.”

Sixty-two percent of respondents said their financial planning needs improvement, but only 35 percent have sought the help of a financial adviser. There are signs of improvement in that area, including a finding that 18 percent of respondents said they did not have an adviser before the Covid-19 pandemic but have either started working with someone or plan to in the future.

Employers need to be aware of their team members’ mindset and take more steps to support them, Stokes says. “For employers, it’s an opportunity to prioritize the financial health of their employees and look for ways to offer tools and resources that make it easier for employees to build lifelong healthy financial habits, including saving for their future,” she says.

From: BenefitsPRO