Outliving our savings is the No. 1 retirement concern. These are some ways to overcome that.
Many of us dream of the day we can slow down, kick back, and enjoy the fruits of our labor in retirement. Life, though, never slows down. No matter what stage of our lives and careers we’re in, we’re always dealing with, well, the things that make up life. Buying a house, raising children, paying for their educations, caring for aging parents, etc.
“Life never lets up,” KC Boas, head of retirement marketing at BlackRock, told BOSS. “There’s always something. You’re always juggling more than one priority at a time.”
The specific concerns vary across generations, but there’s one thing that remains consistent when it comes to preparing for retirement: The big worry people have is outliving their savings. The concerns are valid, especially given that people are living longer than ever. But there are ways to balance the present with the future to ensure a long and comfortable retirement.
Planting A Tree
As the adage goes, “The best time to plant a tree was 20 years ago. The second-best time is now.”
So it goes with saving for retirement. No matter which stage of life and career you’re in, putting what you can aside for retirement is crucial, Boas said. Given that compound interest adds up over time, the earlier the better.
For Millennials and Gen Z, the big financial concern is paying off student debt. Thanks to Secure Act 2.0, employers can treat employees’ student debt payments as 401(k) contributions and match them in retirement accounts. They’re much more likely to stay with employers who do so, giving organizations a retention incentive to match contributions.
Even though 77% of Gen Z respondents in BlackRock’s annual Read on Retirement survey feel on track to retire with the lifestyle they want, 69% are worried about outliving their savings.
It’s a common theme across generations, as people worry about how much to save and how much income they’ll need in retirement.
“Across the board, what people told us is they want to be able to save as much as they can today so that they don’t have to cut back on their standard of living in retirement,” Boas said.
But many in Gen X are caught between caring for aging parents and children that aren’t quite financially independent yet. They can’t realistically cut those expenses, so it can be tough finding some extra pennies in the couch to put away for later. For those 50 and older, catchup contributions can help close the gap.
People tend to underestimate how long they’ll live, but in this year’s survey, most respondents said they hoped to live into their 90s and expected to live into their 80s.
“Maybe it’s starting to sink in in society that we really are living longer,” Boas said.
How Employers Can Help
Armed with that realization, more than 80% of respondents are looking to their employers for guidance and advice about how to manage longer retirements.
“People struggle with what that magic number is, how much they’re going to need,” Boas said.
One thing employers can do is to provide educational resources that teach people how to turn their nest eggs into steady streams of income throughout retirement. One source is BlackRock’s LifePath spending tool, which allows users to calculate their spending potential based on age, savings, Social Security income, and portfolio equity allocation.
Beyond education, companies can provide guaranteed retirement income as part of their 401(k) plans by investing in target date funds. These are a mix of stocks, bonds, and other investments that operate on the principle of taking more risk when an employee is younger and easing back those risks as the employee ages. Financial professionals manage the funds, building toward an estimated retirement date.
“There’s a great need to help people spend in retirement with some form of guaranteed income, so we focused over the past several years on building a solution that would embed basically an annuity into a target date fund, which launched earlier this year, called LifePath Paycheck,” she said.
Organizations can also help their employees find trusted financial advisors, a benefit Gen Z is taking advantage of in droves, with nearly half of the generation working with a financial advisor and 70% of those finding them through their employers. It’s a big part of the reason Gen Z reports feeling most on track for retirement.
Finding Peace of Mind
Among other insights the survey provided, it found that men are 30% more likely than women to say they’re on track for retirement, and 65% of women are worried they’ll outlive their savings, compared to 57% of men.
“Women tend to make less than men,” Boas said, “they tend to have gaps in their employment. The vast majority of caregivers in the United States are still women, not just for children but also for aging relatives. Women live about six years longer than men on average. All of that adds up to a pretty reasonable set of concerns.”
For women especially then, but really for anyone concerned about being able to enjoy retirement, guidance on how much to save, how much they’ll need, and how they should think about spending is paramount. This is precisely the kind of peace of mind financial advisors can provide.
“Eighty percent of people told us that the worry of outliving their savings – even if that’s decades away – was negatively impacting their mental health today,” Boas said. “That has huge implications for the individual, and it can also have implications for the employer if they think about productivity and retention and a healthy workforce.”
In times of uncertainty, it’s invaluable for workers to have trustworthy guidance, and for employers to provide that guidance as a benefit.
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