The journey to retirement is fraught with challenges that can derail even the most well-intentioned savers. A recent survey from Goldman Sachs has shed light on the financial struggles faced by working individuals and retirees, showing that Americans are falling behind on saving for retirement and highlighting the impact that financial advisors play in achieving retirement goals.
Savings Are Not Where They Should Be
The survey revealed that a significant portion of the working population and retirees have accumulated less than $200,000 in retirement savings, with 62% of working individuals and 45% of retirees falling into this category. This is particularly concerning for Baby Boomers and Gen Xers, with 49% and 64% respectively having less than $200,000 saved. Given the rising cost of living and the potential for a 20+ year retirement, this amount is likely insufficient to fund a comfortable retirement.
The challenges encountered by retirement savers are multifaceted, including financial complexity, competing priorities, the need to save for multiple goals, financial stability shortcomings, and a lack of time, interest, and knowledge. These issues can significantly impact an individual’s ability to save effectively and may easily put retirement priorities in on the backburner.
Despite an increased sense of financial optimism among working respondents, with 48% reporting an improvement in their finances, there are still top concerns such as higher everyday expenses, less emergency savings, and increased credit card debt. These are residual impacts of recent inflationary periods, which can further strain retirement savings efforts.
Thankfully, the “Financial Vortex,” a term used to describe the impact of competing financial responsibilities, has had less of an impact in 2024 compared to prior years. However, over 60% of working respondents still expect to delay their retirement due to these competing demands. Too many monthly expenses, financial hardships, and caring for and financially supporting family members continue to have the most widespread impact.
Only one-third of working respondents feel they have the time, interest, and knowledge to manage their savings effectively, despite 55% considering themselves DIY investors. This self-assessment is concerning, as only 20% of respondents were able to answer all five financial literacy questions correctly. This disconnect is significant, as even a 1% lower annual investment return over a career can result in 18% less in retirement savings.
Plans Need to Be Put in Place
The impact of competing priorities can significantly erode retirement savings, and without appropriate interventions, many individuals stand to find themselves underprepared for retirement. An analysis comparing the total retirement savings of a typical saver with those who encounter various disruptive life events illustrates the potential consequences. These events can have a substantial impact on retirement savings, and when multiple such events are considered, even consistent savers may reach retirement without adequate financial resources.
Currently, 38% of retirees, 39% of working Baby Boomers, and 50% of Gen Xers report having less than $100,000 in retirement savings. Additionally, while 73% of workers expect to maintain more than half of their working income in retirement, only 60% of retirees report achieving this level of income replacement. Notably, 77% of working respondents believe their lifestyle in retirement will be the same as or better than their pre-retirement lifestyle despite the significant level of respondents who claim less-than-ideal balances for retirement.
Retirees who had a personalized plan generally report higher savings, experience lower stress as they enter retirement, are more satisfied with their level of retirement income, and are less likely to rely on part-time work to supplement their income. These findings underscore the critical role that intentional planning may play in achieving a secure and fulfilling retirement and highlight a significant area of opportunity for wealth managers.
Baby boomers have been dubbed the wealthiest generation to ever exist, but Goldman Sachs’ survey presents conflicting evidence as to how this population and the next are set to manage this wealth effectively. Importantly, the survey polled the level of retirement assets, but Goldman Sachs points out that their polling of retirement assets does not include bank, brokerage, defined benefit accounts, or the value of homes or other properties.
Financial advisors are thus in the unique position to capitalize on a subset of clients that have an enormous amount of investable assets but have not effectively managed their wealth for their sunset years. According to Federal Reserve data, in aggregate, boomers hold a total net worth of $78.55 trillion.
The survey also compared savings progress across different investor types, identifying four main groups: Passive Investors, DIYers, Advice Seekers, and Advice Reliant savers. Savers who seek advice are generally more engaged, confident, and likely to increase their savings over time, ultimately leading to higher overall savings. Retirees who sought advice are more likely to retire on time and report a better lifestyle in retirement relative to DIY investors.
Retirees who either seek out advice or rely on an advisor to manage their savings are more likely to have higher retirement savings. According to the study, 53% of DIYers have less than $100,000 in savings compared to 12% of Advice Reliant savers. Conversely, 27% of DIYers have more than $500,000 in savings compared to 55% of Advice Reliant savers. Furthermore, working respondents who rely on advice are more likely to report being on track or ahead of schedule compared to DIYers.
A statistical analysis of the impact of key demographic and behavioral factors on savings level revealed that having a personalized financial plan for retirement had the second largest impact on savings level, following education level.
The results from this study show that retirement planning and advice have a significant and positive impact on retirement savings outcomes. Based on these findings, the goal of retirement plans should be to create an environment where every saver, regardless of their financial acumen, level of savings, or level of engagement, has the opportunity to plan effectively and secure a dignified retirement.
In conclusion, the survey results also highlight the importance of having a dedicated financial advisor. Professional guidance can help individuals navigate the complexities of financial planning, make informed decisions, and ultimately achieve a more secure and comfortable retirement. As the survey demonstrates, those who seek advice are more likely to have higher savings, be on track with their retirement goals, and enjoy a better lifestyle in retirement. Therefore, it is crucial for individuals to consider engaging with a financial advisor to ensure they are best positioned for their golden years.
