By Ayo Mseka
More than a year into the recovery from the worldwide pandemic, market risk is still the top concern for American workers.
This is according to research that was conducted by American Century Investments among 1,500 full-time workers between the ages of 25-65, saving through their employer’s retirement plan, and grouped by the categories of Baby Boomers, Generation X and Millennials.
“American workers are concerned about retiring in a market downturn and losing a significant portion of their life savings when they need it the most,” noted Glenn Dial, senior retirement strategist with American Century Investments.
So what can financial advisors do to help their clients manage this risk?
“In-plan Guaranteed Retirement Income Contracts (GRICs) are becoming widespread inside 401(k) plans,” Dial said. “Advisors can help their clients evaluate how much of their assets should be allocated to GRICs to attain their goals.”
Longevity risk also continues to be a top concern for retirement plan participants, according to the survey. When it comes to taking withdrawals, 76 percent of survey respondents would be more likely to leave their money in their 401(k) plan if given an in-plan withdrawal solution.
And although some two out of three workers said that they know how much to withdraw for living expenses, only six out of 10 know how long to make their money last in retirement. Also, seven out of 10 said they need a “little bit of guidance” on how to withdraw money from their retirement accounts.
According to the survey, the good news is that three out of every four workers express at least some interest in holistic financial advice, which has some important implications for financial professionals.
As Dial pointed out, “it’s challenging to make decisions in a silo because most aspects of one’s financial life are interconnected. Workers need to balance their wealth, health, and debt management into a cohesive plan that complements each area.”
Expectations, Worries And Regrets
Some three in 10 workers expect a better standard of living in retirement; yet, four in 10 worry about running out of money, according to the survey. Many also admitted to saving less, particularly during their first five years of working, with six in 10 stating they saved less than they should have.
Ninety percent of participants at least somewhat agree that retirement plans are highly valued benefits; participants most likely to strongly agree with this statement are men, those with household incomes of $100,000 or more and those with assets of at least $500,000. Although four in 10 want a “kick in the pants” or a “strong nudge” to save more, Boomers are more likely than Millennials and Gen Xers to want to be left alone.
Employer matches are important to workers, and automatic plan features are intriguing to them. According to the survey, two out of three believe companies should have automatic enrollment with a six percent default rate, and just over 60 percent believe employers should automatically enroll and automatically increase it each year.
Also, four in 10 said that enrollment, contributions and default investments should be completely automatic for everyone.
American Workers Are More Optimistic
Following a year of the pandemic, participants are now more optimistic about saving, risk and expectations for the future. According the survey, they gave themselves higher grades on saving for retirement this year (an average of B-) versus 2020 (C+) and 2019 (C-).
Risk concerns also diminished somewhat from 2020. Worries about outliving retirement savings fell five percent (58 percent in 2021 versus 63 percent in the previous year); inflation and interest rate risk concerns decreased four percent; market risk worries went down 10 percent, as did concerns about growth.
Dial offered some reasons for this optimism. “Many consumers spent less during the pandemic and therefore saved more,” he said. “We are at a place where consumers have pent-up demand and they have extra dollars in their savings account; this can lead to optimism.”
The survey was conducted between March 8 and March 19, 2021. It included 1,500 full-time workers between the ages of 25 and 65 saving through their employer’s retirement plan. Data collection and analysis were completed by Mathew Greenwald and Associates.
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.