Too Many Americans Caught in a Financial Vortex

Many current retirees are caught in a financial vortex of rising inflation and economic uncertainty that is putting their savings to the test. Just more than half are living on less than 50% of their preretirement annual income, the Goldman Sachs Retirement Survey & Insights Report 2022 found.

“The current environment is driving considerable uncertainty for retirees,” said Greg Calnon, head of multi-asset solutions at Goldman Sachs Asset Management on the Goldman Sachs webinar held on October 11 to discuss their findings. “And those living on less than half of their pre-retirement income are particularly vulnerable. Spending needs are primarily elevated due to high inflation; fixed-income portfolios are under pressure due to rising interest rates; and equity portfolios have declined notably as the markets try to assess the impact of a potential recession. We believe these challenges raise concern for retirees regarding how much they can spend and how long their savings will last.”

Most retirees reported their greatest concern as inflation (71%), followed by future health care concerns (51%), potential reductions in future Social Security benefits (46%) and running out of money (44%). Each percentage has increased since the 2021 survey.

Among the key findings from the 2022 survey:

• Early retirement: 56% of retirees reported retiring earlier than planned, nearly half because of reasons beyond their control, such as health issues (23%), losing their job (11%) or caring for family (9%). These issues reduced their time to save for retirement.
• Income gap: Generating retirement income was a top challenge for retirees, along with understanding how long their savings will last. Retirees reported that the most unexpected aspect of managing their retirement spending was understanding what their income will be so they can know what they can spend (29%), followed by health care costs (23%), housing and home maintenance costs (22%) and supporting family members (11%).
• Guaranteed income shortfall: Retirees prefer retirement income to be consistent and stable (42%) and guaranteed for life (41%). More than three-fourths said they would like to receive at least half of their retirement income from guaranteed sources, including Social Security. However, many are coming up short, with only 55% of retiree respondents achieving this goal.
• Part-time work: The preference for part-time work rose notably from last year’s report, highlighting the challenge of generating retirement income in volatile markets; 34% of retirees (up from 25%) prefer part-time work as a means to help generate income. Working respondents, particularly those nearest retirement, would prefer part-time work (55%), followed by investments (47%), rental income (28%) and annuities (26%).
• Spending trends: 42% of retirees are spending less in retirement than anticipated, 31% are spending what they expected and 22% are spending more.

“A clear theme from our findings is retirement income uncertainty,” says Mike Moran, senior pension strategist at Goldman Sachs Asset Management. “We believe this uncertainty is changing retiree behavior in hopes of preserving their savings for longer, including a surge in interest for part-time work in retirement and lower overall spending.”

An opportunity for advisors

Survey results point to an opportunity for financial advisors to provide assistance. Almost eight in 10 retirees believe financial advice and guidance is important to manage retirement income and investments. Asked how they prefer to receive advice, 46% prefer working with a financial advisor, 27% prefer digital advice and 27% prefer a combination of both.

Asked why they seek professional guidance, retirees focused equally on generating retirement income (37%) and understanding how long their savings will last (37%), then on managing through market volatility (31%).

Working Americans prefer to receive advice from a financial advisor (38%), digital advice (28%) or through a combination of both (34%). They seek professional advice/guidance for generating retirement income (34%), understanding how long their savings will last (32%), whether their savings are on track or need to be adjusted (29%) and retirement savings strategies (27%).

“Americans are facing a new reality, causing many to rethink what retirement looks like,” says Joe Duran, head of Goldman Sachs Personal Financial Management. “As people navigate uncertainty, insufficient savings and competing financial responsibilities, we believe planning for the unexpected is imperative. Most advisors offer retirement accumulation and income planning, but not enough support clients in budgeting or managing competing financial priorities from elder care to education funding. True financial planning requires working closely with clients on their entire financial lives.”

Moran agreed. “As an industry, we can help individuals create a more personalized path to retirement that can help account for financial obstacles and pivot and recalibrate along the way,” says Moran. “We also can provide goals-based resources that can ensure that individuals have the right target in mind, and we can provide the right blend of human and digital support to account for changing preferences.”