A comfortable retirement is not a “one size fits all” scenario. The picture varies based on personal goals, lifestyle choices and financial circumstances. However, generally speaking, a comfortable retirement for most is having enough income and savings to maintain a lifestyle that is similar to the one a person had pre-retirement.
Unfortunately, this may be out of reach for many workers focused on meeting more immediate needs such as paying off a mortgage, health care bills, education payments and day-to-day expenses.
According to the Schroders 2023 Retirement Survey, working Americans 45 and above believe they need $1.1 million saved to retire comfortably. However, only one in five of those surveyed believe they will reach that milestone. Notably, nearly half of respondents 45 and above had less than $100,000 saved for retirement, and only 16% had over $500,000 saved.
This is not a challenge facing just one age cohort—millennial workers (ages 27 to 42) expect they will need on average about $1,300,000 saved to retire comfortably. While the jump in expectations makes sense given the average rise in inflation, more than 70% of millennial survey respondents don’t expect to amass $1 million in savings, and more than a quarter expect to have less than $250,000 in savings by the time they retire.
These findings help shine a spotlight on how far behind Americans are when it comes to their goal of achieving a comfortable lifestyle in retirement. When you couple this lack of savings with the rising cost of living and growing life expectancy rates, it becomes more crucial for individuals to address their retirement savings plans now to support themselves in their golden years.
So, what can advisors do to bridge this gap and combat the current retirement crisis? The answer starts with better education and planning.
Our survey found millennials have on average one-third of their retirement assets sitting in cash, trumping their exposure to equities. They relayed having such a high cash allocation level due to fear of losing too much money if the stock market declined.
This asset allocation strategy is a significant headwind for millennials as fear isn’t a retirement investment strategy for workers with time horizons that span decades.
Even workers 45-plus relayed having almost as much of their retirement savings allocated to cash as they do equities. Between the benefits of compounding and the average historical returns of the markets over the last 200-plus years, savers are doing themselves a great disservice with this conservative approach to asset allocation.
The adage of “time in the market” versus “timing the market” has never been more important. It is vital that the retirement industry, including advisors and employers, do more to improve education and create better asset allocation strategies that can help workers save more and stay the course through the market’s ups and downs.
But having a strategy isn’t enough, it must be put into action. The earlier individuals begin 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 clients who have the benefit of an employer that provides matching retirement contributions, it is crucial that they take full advantage and contribute to the max.
Finally, advisors should regularly review and adjust their clients’ savings plans based on their individual circumstances. There are many financial unknowns that savers don’t plan for, like caring for an elderly parent or the loss of a job. These variables may alter their priorities, how they save and ultimately their expectations for life in retirement, but with the right education and guidance, an evolving plan can keep savers on course to potentially achieve the comfortable retirement lifestyle that is desired.
A comfortable lifestyle in retirement is certainly achievable. But those who don’t seek advice on how to best plan for what they individually define as a comfortable retirement lifestyle could potentially outlive their assets. Don’t let this be your client—be the catalyst for change by educating your clients on how to best achieve the retirement lifestyle they envision. Your clients will thank you when they reach their golden years.
Joel Schiffman, is head of strategic partnerships at Schroders.