A Lesson for Americans Thinking About Retirement: It Isn't Always Your Decision

THE ALLIANCE FOR LIFETIME INCOME’S RETIREMENT RESET SURVEY REVEALS THE IMPACT OF MARKET VOLATILITY ON MILLIONS OF AMERICANS APPROACHING RETIREMENT

Washington, D.C, April 9, 2019 — Nine in ten (91%) employed Americans in their prime retirement years anticipate their retirement timing will be based on hitting specific planned milestones. Yet, nearly half (47%) of those in the same age range who have already retired say they did so as the result of circumstances not fully within their own control.

The unprecedented financial market volatility triggered by the worldwide COVID‑19 outbreak represents one of those unexpected circumstances. The current market volatility is both a source of immediate concern and, for those approaching the end of their careers, a potential reason to delay retirement. Six out of ten (61%) in these prime retirement years are concerned about current market volatility, and the level of concern is even higher among those still employed. Additionally, more than half (52%) of those anticipating retirement are not fully confident about whether they can do it when planned. Stock market volatility is the top factor contributing to their uncertainty.

These are some of the findings from a new research survey titled “Retirement Reset,” conducted with 1,202 U.S. adults, ages 61-65 with $100,000 or more in assets, by the Alliance for Lifetime Income as part of its mission to provide regular data and insights into the attitudes of Americans planning for retirement. More Americans will turn age 65 in 2024 than at any point in our country’s history – an important milestone for the Alliance as it addresses Americans’ risk of outliving their retirement income. This survey explores the views of those in their prime retirement years and was conducted during a period of massive upheaval and market volatility (March 6-16) from the initial impact of the coronavirus and resulting economic uncertainty.

Impact of market volatility

Americans at this peak retirement age face a unique risk from economic uncertainty – a fact that is timely given the extreme market volatility of the past few weeks. Experts call it “sequence of returns risk,” which refers to the long-term impact on a financial plan from a significant drop in the stock market during the early years of retirement.

“The recent huge swings in the market pose a big challenge for the 4.5 million Baby Boomers that will reach retirement age by 2024. Unless they plan to secure a source of protected lifetime income beyond Social Security, their chance of running out of money will increase significantly,” said Jean Statler, chief executive officer of the Alliance. “Since we’re living 20, 30 or more years in retirement these days, it’s not surprising that only a third of those employed in this age group are very confident they will have enough income to cover expenses. This is especially troubling since we surveyed this group of people during one of the worst downturns in the markets.”

Despite respondents’ concern with volatility, seven out of ten (71%) are staying the course in the market, a fact that reinforces the value of protected lifetime income during times of heightened uncertainty, as three-quarters (76%) of people reported having a pension, annuity or both. About one-in-ten (11%) respondents said they are “not at all concerned” about the impact of stock market volatility on their retirement, which is notable considering that the survey took place during a record setting period of volatility. Of those that are not at all concerned, one-in-six (17%) say that’s because they don’t have many investments that can be adjusted.

While current stock market volatility is not impacting investment and portfolio decisions for most, it does appear to play a significant role in one’s decision whether to retire. Among those currently employed, half (52%) are not fully confident they’ll be able to retire at the age they identify as their goal. The most frequently mentioned reason for that lack of confidence is the condition of the stock market, cited by four-out-of-ten (43%) of these uncertain pre-retirees.

Jean Statler continued: “One way to reduce the risk of running out of money in retirement is by making sure you have enough protected lifetime income to cover what we like to call ‘your M.U.G.’ – those essential monthly expenses like a mortgage, medicine, utilities, or groceries. Since Social Security only gets you about 40% of the way there, leading economists and retirement planners tell us an annuity is the only other proven way to help cover your M.U.G. and fill that gap in protected income.”

Great retirement divide

The results also show that nothing is more indicative of one’s behavior, perceptions and approach to this phase of life than whether you have already retired. All other demographic divisions (gender, age, family composition, etc.) fail to provide the same insight into the minds of Americans approaching and living in retirement. A 61-year-old who is retired has perceptions that are more aligned with a 65-year-old retiree than with a fellow 61-year-old who is still working.

The differences between someone who is retired and someone who is still working extend into nearly every aspect of one’s life at this age, including:

  • Retirement confidence: Those who are retired are more confident they will have the income to cover all expenses throughout retirement (47% retired are very confident vs. 34% employed). Protected income from a pension and/or annuity is a key reason for their confidence (62% of those retired have a pension vs. 48% employed; 32% of those retired have an annuity vs. 25% employed).
  • Stock market volatility: 61 to 65-year-olds who are employed are more likely to feel very concerned about the current volatile stock market compared to those who are retired (20% employed vs. 12% retired). Three-quarters of retirees say they are staying the course in the stock market compared to two thirds of those currently working (75% retired vs. 67% employed).
  • Protected lifetime income: Higher percentages of retirees currently have a source of protected lifetime income in the form of a pension or annuity (84% protected and retired vs. 68% protected and employed).

America’s retirement milestone

With more Americans turning 65 in 2024 than ever before, this research provides useful insights into the thoughts and behavior of those making the all-important shift from building their nest egg to planning for a lifetime of income.

“This research provides financial advisors an inside look at how their clients and potential clients face the many unknowns and risks presented at this stage of life,” said Wade Pfau, Alliance fellow and professor of retirement income at The American College of Financial Services. “Retirement simultaneously impacts nearly every aspect of someone’s life while also being hard to predict. The remedy is in the data. Advisors who encourage and work with their clients to create a financial plan that provides for protected lifetime income can expect clients who are both more satisfied and confident, as well as more likely to stick to their plan. With a record number of people reaching retirement age in America, now is the time to plan for income.”

Statler added: “These findings show that, for many in this historic group of Americans, the retirement decision is beyond their control, but the degree of confidence they have in their financial security comes down to planning. People understand this intuitively. We asked 65-year-olds to give advice to their 61-year-old selves. Their advice boiled down to three tips: 1) Save more and be smart financially, 2) be proactive and 3) don’t forget to have fun. That’s great advice at any age.”

Download Retirement Reset Report

Download Retirement Reset Executive Summary

About the Survey

The Retirement Reset study was conducted online between March 6 and 16, 2020, among 1,202 U.S. adults age 61 to 65 years who are employed (full or part-time) or retired (fully retired or retired but working part-time) and who have a minimum of $100,000 in investible assets. The study was conducted by Artemis Strategy Group.

About the Alliance for Lifetime Income

The Alliance for Lifetime Income is a non-profit 501(c)(6) educational organization based in Washington, D.C., that creates awareness and educates Americans about the value and importance of having protected lifetime income in retirement. Our vision is for a country where no American has to face the prospect of running out of money in retirement. The Alliance provides consumers and financial advisors with educational resources, interactive tools, and actionable research and insights to use in building retirement income strategies and plans. We believe focusing attention and conversations on retirement income that lasts throughout life leads to greater retirement security for millions of Americans. Learn more at www.ProtectedIncome.org.

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