Nearly three in four of the respondents to a recent study said they can’t count on Social Security income when planning for their retirement .
“Social Security benefits are often the backbone of a retirement strategy but it cannot be your entire strategy,” said Kelly LaVigne, vice president of consumer insights, Allianz Life. “A strong retirement strategy will ensure you have enough guaranteed income to cover your essential expenses. That guaranteed income can come from Social Security benefits, along with other investments and protection products such as annuities.”
The 2023 Quarterly Market Perceptions Study from Allianz Life Insurance Company of North America also noted that fewer Americans are worrying about the possibility of a major recession right around the corner (57%) than they did last year. Still, 41% said that they are concerned about being laid off because of an economic downturn in 2023.
Many cautious about investing
In addition, most Americans are still very cautious about investing. More than half (63%) are keeping more money out of the market than they think they should, and 62% would rather have their money sit in cash than endure market swings.
More Americans are also expressing concern about their long-term financial health. For example, 78% worry that they might not be able to afford the lifestyle they want in retirement because of the increased cost of living. This is up from 73% last quarter and 68% in 1Q 2022. And many worry that if they don’t increase their retirement savings soon, it will be too late to have a comfortable retirement.
“A strong retirement strategy will address potential risks like inflation and taxes,” LaVigne said. “You can’t prepare for everything, but you can prepare for anything – if you start preparing for retirement early.”
Gen X worried about long-term finances
In addition, the survey said, Gen Xers, people born between 1964 and 1978, are worried about their retirement and long-term financial stability. For example:
43% of Gen Xers worry their employer will suspend their 401(k) match, compared to 38% of millennials (born between 1979 and 1996) and 24% of boomers (born between 1945 and 1963).
67% of Gen Xers said that they are keeping more money out of the market than they should, compared to 66% of millennials and 54% of boomers.
85% of Gen Xers are worried that they might not be able to afford the lifestyle they want in retirement because of the increased cost of living, compared to 80% of millennials and 72% of boomers.
“Gen Xers are entering into, and in critical years of retirement preparation,” LaVigne said. “Many people are often in their highest earning years in their 40s and 50s and finally able to really save a significant amount of money for retirement. This is when they need to establish strategies and really focus in on how they are setting themselves up for the retirement lifestyle they want.”
Helping clients build a strong retirement strategy
The research found that the majority of Americans don’t feel like they can count on Social Security benefits when planning their retirement income strategy, LaVigne pointed out, as he offered some steps advisors can take to help their clients enhance their retirement strategy. “However, as of right now, Social Security payments will play an important role in most clients’ retirement strategy,” he said.
Financial professionals should work with clients to plan how to maximize their Social Security benefits, LaVigne added. Even though Social Security feels uncertain to many clients, financial professionals can help them make moves to mitigate risks. To be sure, Social Security cannot be a client’s entire retirement strategy, LaVigne pointed out. It was never meant to be. Social Security is designed to replace approximately 40% of the average American’s income in retirement. “Financial professionals should make sure their clients will have enough guaranteed income to cover basic expenses in retirement. That means you need to match guaranteed sources of income with those essential expenses that will need to be covered throughout retirement,” he said.
A financial professional could recommend clients take IRA distributions before Social Security payments to increase those guaranteed payments, or to make up for any shortfall, LaVigne added. A financial professional may also suggest adding another source of guaranteed income to a portfolio, like an annuity – preferably one that increases over time, similarly to Social Security.
The survey also noted that most Americans are still cautious about investing, which is an activity that will help them further build their retirement savings. So what can financial professionals do to help them stay in the market and invest responsibly?
LaVigne pointed out that many Americans are hesitant to invest right now. “Yet,” he said, “leaving cash on the sidelines poses risks, too. Inflation often outpaces most fixed investment options, so you may actually lose purchasing power over the long term.”
Financials professionals can help
Financial professionals can help clients make use of that money. Clients, who are wary of investment but want to make financial decisions to set them up for future success, may want to pay off high-interest debt. “In general,” he said, “it will likely benefit clients in the long term to continue to invest in the market.”
Financial professionals can suggest ways to take part in the market and limit a client’s exposure to risk, LaVigne added. Clients can invest in stocks or mutual funds that are less volatile than the market as a whole, or choose stock investments that historically have paid dividends.
Investors who want to lower risk could also consider buffered exchange-traded funds (ETFs), which mimic different indexes and are traded like stocks, yet provide a level of downside risk protection, LaVigne said. “Fixed Indexed Annuities (FIA) and Registered Indexed Linked Annuities (RILA) also can add market exposure with different levels of protection against loss for low or no additional fees,” he added.
The Allianz Life conducted the 2023 1Q Quarterly Market Perceptions Study online in March 2023 with a nationally representative sample of 1,005 respondents age 18+.
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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