Americans close to retirement or recently retired are still not prepared, according to a new survey, Americans Change Retirement Savings Strategies, from the Alliance for Lifetime Income (ALI), a nonprofit consumer organization which educates Americans on how to protect their retirement.
“There has been a seismic shift in retirement security from a time when many people could rely on a pension in retirement,” says Jason Fichtner, a senior fellow and head of the Retirement Income Institute and chief economist at the Bipartisan Policy Center, both based in Washington, DC. “Today, many Americans are facing a retirement crisis because they are at risk of running out of money in their retirement.”
He also states that is the first retiring generation where more than half don’t have a pension covering part of their retirement costs. “That makes this the first generation where the majority must rely on their own savings efforts to prepare for retirement,” Fichtner tells FOX Business.
There’s another issue at hand that is impacting the retirement crisis. “We’re about to hit Peak 65 next year, a historic demographic event when we’ll see the largest number of Americans reach 65 in history, and far too many people still don’t have the savings and protected income they need to retire comfortably,” Fichtner tells Fox. He reports that roughly 10,000 people a day are turning 65 and that number will increase to 12,000 a day when we reach our Peak 65 moment next year.
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In the first wave of its multi-part 2023 Protected Retirement Income and Planning (PRIP). According to the ALI, this study is the only research of its kind that surveys both consumers and advisors simultaneously. The annual study examines the rapidly changing retirement income planning landscape, including shifts in consumer attitudes and behaviors toward retirement savings, a press statement said.
Growing demand for protection and annuities
This survey also reveals how consumers want 80% of their retirement savings, which will cover their needs in retirement, to be invested in safer investments, and those protected by a pension and/or an annuity have a significantly more positive outlook on their retirement prospects, according to the survey results.
Also, per The Alliance for Lifetime Income, consumer demand for annuities has skyrocketed to an all-time high amid concerns about unprecedented market volatility and falling retirement investments.
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In simple terms, Fichtner explains that an annuity can be structured like a personal pension you can purchase from an insurance company to turn a portion of your retirement savings into a predictable paycheck. “Depending on the type of annuity, you purchase the contract (as an individual or married couple) in either a single payment or with multiple payments over time,” he added.
According to Fichtner, there are many annuity types available today, with different features, benefits, and costs, but they basically fall into three main categories:
Annuities can be a valuable part of a diversified portfolio. Fichtner says annuities may be a good choice if:
Why is diversification so vital in your portfolio?
Diversification is more important than ever, especially when you are building a comprehensive retirement portfolio, Fichtner says. He points out you need to think about the types of accounts you own- taxable, tax deferred (IRA, 401k)- as well as the types of investments you own- (stocks, bonds, mutual funds, ETFs, and annuities). “Annuities are becoming more and more popular since many people do not have pensions, but still want protected retirement income,” Fichtner tells FOX Business. “And making our savings last is a big deal given we are generally living longer than prior generations.”
How does risk tolerance and time impact investment decisions regarding retirement savings?
Peter J. Landry, CLU® director, insurance and annuities, Wells Fargo Wealth & Investment Management, who is based in Charlotte, NC, explains that a consumer’s risk tolerance is arguably the most important consideration of all with respect to retirement savings. “It would be inappropriate, for example, for a risk-averse consumer to invest their retirement savings in a product solution that provides a great deal of exposure to market volatility,” Landry tells FOX Business. “Above all, peace of mind is what is most important and why it is vital to understand the amount of risk a consumer is willing to absorb.”
That said, inflation, which has been historically high as of late, can erode the buying power of the retirement dollars that the consumer is putting aside, Landry says. “Younger individuals will want to carefully consider at least having some market exposure so that they can grow their retirement savings over time and work to keep pace with inflation,” he continues. “Additionally, having time before needing assets allows for the time value of money, essentially compounding interest, to work to provide for growth of the investments being accumulated for retirement.”