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Reticence and Risks Rife?

Practice Management

These are bracing times for retirement savers, and two recent reports offer a window into tensions savers feel and risks plan sponsors perceive and anticipate. 

Economic uncertainty can breed slower progress in saving for retirement or even regression, LIMRA suggests. Even before  the current economic conditions, they say, nearly 40% of those nearing retirement were very concerned that they would outlive their retirement savings. In addition, LIMRA reports that it has found that: 

  • 46% of employees in their 40s or older think that even Social Security combined with their pensions will be insufficient retirement income;
  • 39% of retirees and those who will retire soon have estimated how long their assets will last when they are retired;
  • 37% of retirees and those who will retire soon and who have assets of less than $100,000 have not done any financial planning;
  • 20% of employees participate in a pension plan; and 
  • 11% of employees have reduced what they contribute to their retirement accounts because of inflation. 

And recent months have not helped. LIMRA reports that 42% of adults told them they had taken actions that were detrimental to their financial readiness for retirement. For instance, 6% took early withdrawals from their retirement plans, and 7% of retirees made unscheduled withdrawals from retirement plans. 

The investment consulting firm NEPC buttresses the current apprehension. In a November 2022 poll of corporations and non-profits, they report that the ability of the Federal Reserve to manage inflation was the top choice of what the biggest risks are to the markets in the next 12 months. Rising interest rates came in second. 

Further, NEPC says that none of the respondents that had frozen their defined benefit plan said that they were going to unfreeze it or that they had even thought about doing so. 

Research by Icon Retirement Innovation Research Center adds fuel to the fire, finding that a majority of Americans (63%) still feel stress about their finances. Icon adds that this is not new, however — they say that the pandemic exacerbated a sentiment that was already there. 

Rather than inflation Icon attributes the stress to a lack of financial literacy and lack of access to employer-provided retirement plans.

But Still Some Sunshine

Despite the signs of stress, reseachers still do report some positive developments. 

A majority — 63% — of NEPC’s respondents said they have no plans this year or next to implement pension risk transfer. Only 5% said they plan to terminate their DB plan. 

For their part, LIMRA researchers found that 80% of adults recently have taken positive steps, including becoming more budget-conscious (77%) and increasing saving and investing. For their part, LIMRA researchers found that 80% of adults recently have taken positive steps, including becoming more budget-conscious (77%) and increasing saving and investing. And T. Rowe Price found in research in the first half of 2022 that:

  • more than 96% of 401(k) participants have not changed their investments; 
  • the deferral rate has held steady at 8.4%; and 
  • 20% of 401(k) participants have increased their deferral rates. 

LIMRA adds that it has found that individuals’ optimism increases when they engage in more planning activities, such as developing a specific plan or strategy for generating income from retirement savings, estimating how long their assets and investments will last, and calculating their likely income and expenses during retirement.