managing pandemic aftershocks

Managing pandemic aftershocks

How you can help ease client concerns about finances, retirement, and inflation.

The COVID-19 pandemic and resulting economic uncertainty caused a significant shake-up with many Americans’ financial plans.

As a result, both people who are still in the workforce and those who have already retired need to make difficult decisions that will affect their financial futures. The pandemic created many new challenges, causing financial fatigue that could lead to risky choices or even a complete lack of action.

The new 2022 Retirement Risk Readiness Study from Allianz Life1 found that confidence in financial futures differ between retired and non-retired Americans. People who have yet to retire are much more anxious about their financial futures than their retired counterparts.

While 63% of non-retired respondents said they fear running out of money more than death, just 46% of retirees had the same fear. These younger Americans are in need of guidance to help them plan for a successful tomorrow.

The study surveyed three categories of Americans to get different perspectives on retirement: pre-retirees (those 10 years or more from retirement); near-retirees (those within 10 years of retirement); and those who are already retired.

Pre-retirees are more worried than retired Americans about:

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Having enough money to do all the things they want in retirement (64% versus 28% of retirees)

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The cost of living increasing and limiting ability to afford necessities (69% versus 33% of retirees)

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Running out of money before they die (65% versus 31% of retirees)

Pre-retirees feel less confident than they did last year about their financial futures. In the 2022 survey, only 68% of pre-retirees said they feel confident in being able to support their future financial goals versus 75% who said the same last year.

During the pandemic, people who have yet to retire made financial decisions that could put their financial futures at risk. Many people said they took money out of investment accounts or reduced how much they saved in retirement accounts.

What decisions did you make about your finances during the COVID-19 pandemic?

34%

“Taking money out of my investment account (e.g., 401k, IRA) and moving to cash”

39%

“Reducing the amount I was putting into my retirement accounts”

54%

“Spending too much money on non-necessities” (the majority regret the decision)

Despite these actions, non-retired respondents expressed a desire to improve their financial decision-making, particularly those who are further from retirement. Nearly half of pre-retirees (48%) said they would like to make a formal financial plan with a financial professional. The same amount said they are interested in purchasing a financial product that provides a guaranteed source of retirement income.

Although retirees are feeling good, overconfidence is a threat

Retirees are optimistic about their financial futures. The vast majority – 89% – of retired respondents said they feel confident about funding their future financial goals.

More retirees said they left the workforce on their own terms in comparison to last year. Fewer reported unexpected issues leading to a premature end to their working years. In 2022, 42% of retirees said they retired earlier than expected versus 68% in 2021.

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Why did you retire earlier than expected?

  • Health care issues that prevented me from being able to do my job (26% down from 33% in 2021)
  • Unexpected job loss (15%, down from 22% in 2021)
  • I was financially ready earlier than I expected to be (18%, up from 9% in 2021)
  • I wanted to have some fun while I still can(12%, up from 7% in 2021)
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Retirees are more relaxed than they were last year about retirement risks.

  • Market downturns (47%, down from 65% in 2021)
  • Health care costs (43%, down from 73% in 2021)
  • The rising cost of living preventing them from enjoying retirement (41%, down from 59% in 2021)

Although many retirees are feeling relieved about financial worries that were heightened during the pandemic, this could leave them overconfident and potentially have them taking fewer proactive steps to ensure their financial futures. This is an opportunity for financial professionals to check in and make sure their clients’ plans are adapting to either changes in the market or changes to their circumstances.

Job changes and inflation bring additional challenges

Many people are anticipating that they will change jobs in the coming year. Four in 10 reported that they are likely to take a new position at their current company, and approximately three in 10 said they may leave their current employer for a new company or go into business for themselves.

How likely are you to do any of the following in 2022?

40%

“Take a new position at your current company”

34%

“Leave your current employer and take a new job at another company”

33%

“Leave your current employer and go into business for yourself”

Changes in employment often have a significant effect on peoples’ financial picture. This can lead to worry about both short- and long-term financial planning.

More than half of people still working said they are worried about how a change in employment would affect their ability to pay for necessities like housing and food, force them to cut back on non-essentials like entertainment, reduce the amount they can save for retirement, or force them to completely stop saving for retirement.

Inflation is another current concern. More than three-quarters of Americans – 78% – said they expect inflation to get worse in the next 12 months. At the same time, 40% of retirees and 59% of people in the workforce said their income is not keeping pace with the rising cost of living.

People who are still working are particularly concerned about their ability to pay for necessities and save for retirement. 

How are they coping with these challenges?

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Find a job that pays more – 53%

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Reduce spending on necessities – 52%

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Dip into savings to make ends meet – 49%

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Stop or reduce education savings (among those with children) – 52%

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Stop or reduce retirement savings – 45%

Whether it’s helping them deal with a major life change or devising a strategy to address economic headwinds like inflation, financial professionals can be a crucial resource for weary Americans who are financially fatigued from the pandemic. The financial aftershocks from the pandemic are still affecting many Americans both retired or still in the work force. Both groups would benefit from professional assistance in taking the necessary steps to mitigate risks to their retirement security.

1 Allianz Life conducted an online survey, the 2022 Retirement Risk Readiness Study, in February 2022 with a nationally representative sample of 1,000 individuals age 25+ in the contiguous U.S. with an annual household income of $50k+ (single) / $75k+ (married/partnered) OR investable assets of $150k.