Americans Are Failing at Retirement

Americans Are Failing at Retirement

The United States is facing a retirement crisis that has been brewing for decades. While there are several factors that contribute to this growing problem, the underlying issue is a general lack of education and preparedness for retirement. Thousands of Americans reach retirement age every single day, yet many of them struggle with finances or lack the sufficient funds needed to see them through their retired years. Much of the financial stress caused by a lack of investment knowledge could be alleviated by seeking a retirement phase expert; however, many retirees are devoid of any kind of financial advisor, potentially exacerbating financial stress in retirement. The American College of Financial Services conducted a Retirement Literacy Quiz and released the results to encourage investors to receive a financial education and to seek out an advisor to avoid the financial pitfall of not being prepared for retirement.

Of those who participated in the survey, many investors who did have a financial advisor still were lacking a financial education. Only 46% of respondents who had a financial advisor had a written retirement plan, meaning the other 54% were potentially unprepared without a roadmap for their later years. Studies have shown that retirement knowledge increases when an investor works with a financial professional, but not all financial professionals are right for the retirement phase of an investor’s life. According to the Retirement Literacy Survey, 70% of respondents said that they believed guaranteed lifetime income is important especially in retirement, however only 30% said they were interested in owning a retirement vehicle that guaranteed income, such as an annuity product. These statistics highlight the importance of a well-rounded financial education when preparing for retirement.

Financial advisors, specifically those who are retirement phase experts, can provide a financial education to their clients, likely increasing investor knowledge when it comes to guaranteed income investments in retirement. The safe investment vehicles promoted by retirement phase experts also contain other financial benefits, such as guaranteed principal protection in the event of an uncontrollable economic catastrophe.

When the COVID-19 pandemic shut down the economy and sent markets plummeting, 40% of respondents in the Retirement Literacy Survey said that they were prepared for a market downturn, leaving 60% at risk of becoming a financial victim to the virus or the stock market. The National Retirement Risk Index (NRRI) found that at the onset of the pandemic, 50% of households were at risk of not being able to maintain the same standard of living in retirement that they enjoyed during their working careers. Since the onset of the COVID-19 pandemic, this number has risen to 55% of households. Coupled with the lack of financial retirement knowledge from investors, the need for retirement phase experts is increasingly clear for consumers nearing the end of their working years, as a majority of households face the risk of having to delay retirement to meet financial needs.

Just as troubling as the statistics surmounting from the COVID-19 pandemic, are the number of households that don’t have any retirement accounts, according to the Federal Reserve. Nearly half of American households do not have any retirement accounts or plans. Of the households who do have retirement accounts, the average savings among those families equate to $255,000 — not nearly enough to last the remainder of one’s life should they retire at the full retirement age of 67. Of course, these economic problems are being exacerbated by the coronavirus, but these issues have persisted for decades and shows just how vulnerable American retirees are without a proper retirement education. While it is difficult to predict where these statistics go post-COVID, it is generally accepted that there is a good chance Americans will continue to be under-resourced as they head into retirement.

Researchers from the Transamerica Center for Retirement Studies found that there was also a disconnect when it came to linking financial health with physical, mental and emotional well-being. The Transamerica study highlighted the need to preserve the health and wellness of investors during retirement through the usage of long-term care insurance. They found that many retirees lack the sufficient funds to cover the costs of long-term care, thus relying on family members and friends to provide the bulk of care, should they need it during retirement. Nearly 1 in 5 retirees had no plan at all when it came to long-term care services — this statistic is down from the 1 in 4 retirees who weren’t thinking about long-term care in 2018. Comparatively, the Transamerica data shows even less (31%) retirees using a financial advisor, unlike the 57% that was found in the Retirement Literacy Survey. Even with the retirees who are collaborating and seeking guidance from a financial advisor, the discussion about long-term care is rare. 80% predominantly use their financial advisor to handle retirement investments, while less than 20% of retirees who have a financial advisor discuss the topic of long-term care.

Furthermore, when asked about what participants most feared about retirement, 44% of the retirees participating in the survey answered that their biggest fear is needing long-term care services as a result of complicated health problems. Conversely, when asked about financial priorities, only 24% of participating retirees listed “long-term care needs” as a prime component of their investment strategy. The unpreparedness for long-term care needs, along with general lack of retirement readiness serves as a heavy burden for Americans who are in or near retirement worrying about their financial future. These worries would be lessened and eased if more investors received a financial education from a retirement phase expert.

Much of what is driving the retirement crisis in the United States is the slow drain of social security and the possibility of the trust funds that control retirement safety net going bankrupt. According to the Social Security Administration, 90% of Americans 65 or older receive social security benefits. 50% of married couples and 70% of single Americans aged 65 or older rely on social security to make up half of their annual income. Alternatively, the Social Security Administration cited that 21% of married couples and 45% of single recipients over the age of 65 receiving social security rely on their benefits to account for 90% of their yearly income. Investors who are properly educated about retirement phase investments may be able to reduce their reliance on social security to account for a majority of their fixed retirement income.

Having a financial advisor is important but having a retirement phase expert is especially crucial as Americans enter or live through retirement. The research conducted by The American College of Financial Service and the Transamerica Center for Retirement Studies showed stark contrasts between the knowledge of investors and the education that they receive from their advisors. While a retirement crisis is likely to persist in the coming years, the burden of being under-resourced while planning for retirement can be lessened with the right financial professionals, specifically a retirement phase expert.

A retirement phase expert can introduce investors to safer investment strategies, unlike the high-risk investments that most traditional advisors promote. Preparing for retirement with an advisor specialized in the financial needs of retirees serves numerous educational benefits and for many investors, that information can be priceless. Retirement phase experts educate investors on retirement saving vehicles that offer safer alternatives to the dangers of Wall Street while countering the shortcomings of social security, and more. Retirement phase experts look beyond the financial security of their investors and provide education and investment opportunities to also address the need for long-term care. Overall, the retirement failures that have taken place throughout the United States are spuriously related to the lack of investor knowledge, thus highlighting the need to receive an education from investment advisors, specifically consulting with those who are retirement phase experts.