Retirement security is on the wish list for most working Americans. Millionaires have major concerns when it comes to their own Retirement Security. Financial security in America is on shaky ground. Inflation, rising interest rates, recession fears, and the lingering effects of the Covid-19 pandemic have created a tough environment for most American adults, who are struggling to meet everyday needs like groceries, gasoline, and housing. While many Americans have pulled back on their spending behaviors, saving for the future doesn’t seem to be a priority. This puts future financial security in jeopardy for many workers. Even millionaires aren’t super-confident in their ability to retire in comfort.
That’s according to a new study from Natixis Investment Managers, which found that high-net-worth individuals (HNWIs)—those with $1 million or more in investable assets—are concerned about their retirement security. The impact of a market downturn and the resulting portfolio losses have contributed to these feelings of uncertainty around retirement security.
The Natixis study was global, but some of the highlights from its U.S. survey include:
- On average, HNWIs say their plan is to retire at age 63.
- 58% of them now accept that they may have to work longer than they had planned.
- 44% are worried that they won’t be able to keep working for as long as they might need to.
- 42% are so worried about their retirement security that they avoid thinking about retirement.
- More than 35% of millionaires say “it will take a miracle” to achieve a secure retirement.
“A decade of historically low rates impeded investors’ ability to annuitize assets, leaving many retirees with a less-than-ideal income. It’s true that the overall level is still low from a historical perspective, but rates are now rising on higher government debt. Together with persistent fears of a global recession, we’re seeing new risks emerge,” said Liana Magner, Executive Vice President and Head of Retirement and Institutional in the U.S., in a statement. “Those hoping to retire need a new playbook, including education, planning, tools, and policy to meet the retirement crisis.”
Magner also noted that although the impact of inflation and low rates could soften, one thing impacting those living in retirement are rising healthcare costs. The overwhelming majority of those surveyed (65%) acknowledge that healthcare costs and long-term care costs like nursing care will have a big impact on financial security in retirement.
Traditional rules of thumb for drawdowns, like the 4% rule—which says that retirees should withdraw 4% of their assets in the first year as income, and 4% plus the rate of inflation in future years, may not be as applicable these days. Stock market risks and the still-low interest rate environment, despite rising rates, may prevent retirees from generating adequate income to sustain a comfortable lifestyle. Natixis found that more than half (58%) of high-net-worth respondents recognize that low rates will make it difficult to generate an income via their personal savings. Investors may do well to consider additional diversification strategies, and seek the guidance of an expert financial professional.
The “three-legged stool” of retirement funding (Social Security, Employers, Individuals) may also require a shift. Amidst concerns about the long-term viability of Social Security and rising public debt, 31% of respondents believe it will be difficult to make ends meet without Social Security.
Financial professionals recommend the following to prepare for a secure retirement, according to Natixis:
- Be mindful of the risks of inflation;
- Don’t underestimate your longevity;
- Balance risk and conservation of assets with reward and growth; and
- Set realistic expectations for investment returns.
This is valuable advice that retirement plan advisors should incorporate into their sessions with 401(k) plan participants and clients. Employers can use, in their education and communication, strategies to bolster retirement security. Unfortunately, retirement security is impacted by economic and market uncertainty as millions of Americans continue to face financial insecurity today and in the future.
