Recent research conducted by Lincoln Financial Group reveals that 37% of U.S. adults express shaken confidence in their retirement preparedness. The research serves as a wake-up call for individuals and financial professionals to closely evaluate their retirement strategies.
Key findings from the survey indicate that many consumers are grappling with confidence in their ability to prepare for and manage their finances throughout retirement. The economy, stock market fluctuation, and global events are attributed as key influencers for this loss of certainty. In fact, a mere 30% of retirees are very confident in their ability to manage their finances during retirement effectively, and 62% wish they could go back in time and change the way they planned for retirement.
Why consumers are feeling less confident
So, what is causing this lack of confidence? Among those surveyed through Lincoln’s Consumer Sentiment study, 77% of retirees cited the economy and stock market fluctuation, and 53% cited global events as key influencers for their shaken confidence, according to Ralph Ferraro, senior vice president, retirement plan services, Lincoln Financial Group. More recently, he added,
Lincoln’s 2023 Wellness@Work White Paper identified a decline in retirement fund contributions since 2021 as retirement confidence has decreased – 22% of plan participants decreased their contributions in the past year, and 14% of non-participants say they were saving before but had to stop saving in the past year.
Another reason for this low level of confidence is that clients are worried about whether they retirement-ready, explained MDRT member Rao Garuda, CEO & founder, Associated Concepts Agency LLC. “What if they live too long and run out of money? What if the stock market keeps going down? What if they or their spouse needs long-term-care coverage?” he asked.
Raising consumers’ retirement confidence
The life insurance industry can provide several cover-all solutions, Garuda added. Here are a few tips advisors can consider as they work with their clients, according to Garuda:
Using cash value life insurance to cover sequence of returns risk and allow the market to recover.
Having a guaranteed income program that’s offered by their life insurance company.
Having a life insurance policy that is designed to provide tax-free income, long-term-care coverage, and protect their loved ones at the same time.
“These solutions are a lot like a Swiss Army Knife,” Garuda said. “They can cover many needs with just one product.”
The need for client education
Financial professionals play a key role in educating participants on their options when it comes to preparing for retirement, added Lincoln’s Ferraro. They can:
Educate clients about the variety of retirement solutions. It is important that advisors help their clients understand what works best for them to achieve the lifestyle they desire in their golden years, he said. “Our research reveals that 81% of retirees are interested in investing in solutions that protect them from losses due to market volatility. This indicates an opportunity for expert guidance that directs participants to options, such as in-plan income products that provide guaranteed income for lifetime security,” he added.
Consider workplace retirement plans as part of a comprehensive portfolio. Advisors have an opportunity to support clients in the choices they may make for their workplace retirement plans, as well. “Based on our study, Ferraro said, “only 68% of those who work with a financial professional receive help from them when making those decisions. Many savers tell us the workplace retirement plan represents a large part of their overall savings/portfolio, representing an opportunity for advisors to insert themselves as experts across solutions inside and outside of the participant’s employer-sponsored plan.”
Talk early and often about retirement savings. Advisors can help plan participants understand how retirement savings will translate into income when the time comes, helping ease fears and restore confidence. “Given that 74% of retirees wish they would have started saving earlier and 63% wish they had saved more, financial advisors have an opportunity to work with Americans at all ages and stages of life to help them navigate their unique circumstances, understand short- and long-term implications of investing, and design the life they want to live in retirement. “
Additional tips for pre-retirees
Retirement is a lifetime event that takes years to prepare for and is not necessarily a onetime event, explained MDRT member Curtis Cloke, CEO and founder of Thrive Income Distribution System. Retirement is not about an age. There is a narrative that suggests retirement is an age (65), but that’s made up, Cloke added. The word “retirement” was invented back in the 19th century by Germany’s leader, Otto Bismarck, he explained. Bismarck couldn’t get older workers to retire quickly enough to provide enough jobs for younger generations, he said, so he announced that he would pay a pension to any non-working German over age 65. However, this was the time before penicillin and very few lived beyond age 65, he said.
So, the first step, Cloke advised, is to not have a mindset that retirement is an age. “Many people need to have a change of engagement, but they don’t need to give up their day job. This could be because of the income, but many times, it’s more about identity and the enjoyment of maintaining that identity or purpose,” he said.
Cloke suggested the following key steps for helping pre-retirees prepare for retirement:
Let them know that retirement is not an age.
Retirees need a written plan.
Retirement planning ideally should start at least 10 years in advance of planned retirement or the change of engagement from full time to part-time.
At a minimum, the plan must consider longevity for both spouses, Social Security timing, taxes, fees, safe withdrawal rates for income-drag, essential and discretionary lifestyle needs and desires, asset location to ensure income for a lifetime, asset dedication for liquidity needs, and asset allocation for growth.
Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com.
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