5 ways retirement planning is changing for Americans

Americans are facing a new retirement reality. With ongoing challenges like inflation and market volatility, the way Americans prepare for retirement has dramatically shifted. These changes show the need for financial professionals to incorporate risk mitigation strategies into their clients’ long-term financial plans.

This new reality is coming into focus as older generations retire and younger Americans begin to plan for retirement. For example, 70% of boomers say the overall financial climate these days makes it much harder for young adults to balance savings and spending, compared to when they were young, according to the Allianz 2023 Annual Retirement Study.

The study reveals five ways retirement planning is changing for Americans:

Americans expect financial crises

The majority of Americans (56%) said they consider “financial crises” a permanent part of retirement planning. People who are planning for retirement today have lived through many times of economic turmoil like the Great Recession. Americans needs to incorporate strategies for mitigating the effects of financial crises within their retirement strategies.

This could include ways to reduce sequence of returns risk. Experiencing a down market in the years just before or after retiring can deplete your clients’ assets sooner than expected. To lessen sequence of returns risk in your clients’ retirement portfolio, financial professionals can help them save more to provide a larger buffer, diversify the portfolio across asset classes, and consider a guaranteed source of income.

 

Less employer support

Younger Americans feel like they’re receiving less support from their employer for retirement savings than their parents received. This could be from the ongoing shift from defined benefit plans – pensions – to defined contribution plans – 401(k)s.

The majority of millennials (57%) said they get less support from their employer for retirement savings compared to the employer support their parents received. Just less than half (47%) of Gen Xers said the same. Individuals need to fund their own retirements. With more individual responsibility for retirement saving and preparation, Americans need a holistic retirement strategy.

 

Inflation, inflation, inflation

Inflation erodes the buying power of your clients’ money over time. More and more, Americans say that inflation is hampering their finances. Nearly half of all Americans (49%) said a top risk to their retirement income is everyday costs increasing so much that they cannot afford their basic expenses. This is up from 44% in 2022 and 38% in 2021.

In the short term, inflation is forcing Americans to save less for retirement. For example, 46% said they have reduced or stopped saving for retirement and don’t expect to increase their savings levels in the foreseeable future because of inflation. In the long run, Americans need to set themselves up for a strong financial future with a strategy that helps address the effects of inflation.

 

Younger Americans feel behind

Millennials and Gen Xers feel like older generations were better off. These younger generations have experienced a different economic reality than their parents – many were in formative years during the Great Recession and took out large student loans.

For example, 63% of millennials said it is taking them longer than their parents to reach milestones such as owning a home or completing college. Less than half (47%) of Gen Xers said they are taking long than their parents to reach milestones. And just 27% of boomers said the same.

At the same time, boomers were much more likely than Gen Xers or millennials to say they are in a better overall financial situation than their parents were at their age. While 70% of boomers feel better off than their parents, just 55% of Gen Xers and 61% of millennials said the same. Meeting with a financial professional can help these younger Americans with their retirement strategy to help them feel back on track.

 

Many don’t know where to start

The majority of Americans (56%) said they don’t know where to start planning for retirement beyond having a basic retirement account like a 401(k) or IRA. They could benefit from conversations with a financial professional who can help them understand their retirement needs, their Social Security benefits, and how to start making a plan.

Professional guidance could help them take proactive steps for their financial future, like having a written financial plan. Many Americans have yet to take this step to set themselves up for a successful retirement; for example, 40% said they don’t have a financial plan for retirement and will just figure it out when they get there.

A financial professional who understands the fear of risks like market volatility and inflation will be prepared to offer guidance and help these Americans start to plan.