A comfortable retirement is not a one-size-fits-all scenario. The picture varies based on personal goals, lifestyle choices, and financial circumstances. In general, however, for most, a comfortable retirement means having enough income and savings to sustain a lifestyle similar to that of before retirement.
Unfortunately, this may be out of reach for many workers who are focused on meeting more immediate needs like paying off a mortgage, healthcare bills, education payments, and day-to-day expenses.
According to Schroders’ 2023 Retirement Survey, working Americans aged 45 and over believe they need to save $1.1 million to retire comfortably. However, only one in five respondents believe that they will reach this milestone. Notably, nearly half of respondents age 45 and older had less than $100,000 saved for retirement, and only 16% had saved over $500,000.
It’s not a challenge that’s unique to just one age cohort — millennial workers (aged 27-42) estimate that on average they need to have about $1,300,000 in savings to be comfortable to retire. While the increase in expectations makes sense given the average rise in inflation, more than 70% of Millennial survey respondents do not expect to amass $1 million in savings and more than a quarter expect to have less than that by then Retire having $250,000 in savings.
These insights help shine the spotlight on how Americans are lagging behind in their goal of enjoying a comfortable life in retirement. Couple this lack of savings with the rising cost of living and increasing life expectancy, making it increasingly important for individuals to start their retirement plans now to feed themselves into their golden years.
So what can consultants do to close this gap and combat the current pension crisis? The answer starts with better education and planning.
Our survey found that, on average, Millennials have a third of their retirement savings in cash, which exceeds their exposure to stocks. They said they had such a high cash allocation because they feared losing too much money if the stock market fell.
This wealth allocation strategy poses a significant headwind for millennials, as fear is not a retirement planning strategy for workers whose time horizon stretches out over decades.
Even workers over 45 say almost as much of their retirement savings is invested in cash as in stocks. Given the benefits of compounding and the average historical returns of the markets over the last 200+ years, this conservative approach to asset allocation doesn’t do savers much of a favor.
The saying “time on the market” vs. “timing of the market” has never been more relevant. It’s vital that the pensions industry, including advisors and employers, do more to improve education and design better asset allocation strategies that can help workers save more and stay on course through the ups and downs of the market .
But a strategy is not enough, it must be put into action. The sooner someone starts saving for retirement, the more time their money has to grow. Even small contributions that can be increased over time can make a big difference.
And for those customers who will benefit from an employer providing matching pension contributions, it is critical that they take full advantage and make maximum contribution.
After all, advisors should regularly review their customers’ savings plans and adapt them to suit the individual situation. There are many financial unknowns that savers cannot anticipate, such as caring for an elderly parent or losing a job. These variables can change their priorities, the way they save, and ultimately their expectations for life in retirement. However, with the right education and guidance, an evolving plan can keep savers on track to potentially achieve the comfortable retirement lifestyle they desire.
A comfortable lifestyle in retirement is entirely achievable. But if you don’t take advice on how best to plan for what you individually define as a comfortable retirement lifestyle, your wealth could potentially survive. Don’t let this become your customer – be the catalyst for change by educating your customers on how best to achieve the retirement lifestyle they envision. Your customers will thank you when they reach their golden years.
Joel Schiffman is Head of Strategic Partnerships at Schroders
