Retirement

How To Improve Retirement Confidence In Today’s Uncertain Economy

A recent survey has announced something you already know. The Employee Benefit Research Institute conducted an online survey in late January and early February. It found that retirement confidence among workers has dropped to 64%. This is the lowest level since 2008 when America was on the cusp of its credit-crunch recession.

The 2023 ICI Fact Book shows U.S. retirement assets dropped nearly 15% between 2022 and 2021. These figures include defined benefit plans. According to the ICI, these plans “do not have sufficient assets to cover promised benefits that households have a legal right to expect.”

Is it any wonder that people are losing confidence they’ll retire in comfort?

“The world has been crazy lately,” says Derek Sall, founder and lead of Life And My Finances in Grand Rapids, Michigan. “We had Covid, we had a recession in there, there’s rising inflation, rising interest rates, warfare, political uncertainty, and yet another looming recession. That’s a lot to worry about!”

What is the greatest risk that most people will face in retirement?

Sometimes it pays to worry because it causes you to fix things before they break down. If you’re concerned about whether your retirement will be what you expect it to be, now is the time to zero in on the greatest risk you’ll face in retirement. Only then can you determine how to mitigate that risk.

Clearly, the biggest risk comes from failing to have put in place a realistic and disciplined savings plan. You can’t simply pay this with lip service. You’ve actually got to commit to addressing it. Don’t let current events distract you.

“With current inflation and the expense of so many things like healthcare, college education, and many other things in our society, in conjunction with headlines about Social Security and Medicare running out of money, how can you blame younger people for thinking this way?” says Rick Anzelone, managing partner at StrategicPoint Investment Advisors in Providence. “There were challenges for every generation with wars, economic downturns, political discourse, etc., and it probably felt like the world would end, but it didn’t. If you point that out and show younger people what difficulties previous generations faced and still succeeded, they might believe they could too. Educating younger people and showing them a plan on how to get to retirement may motivate them. As I always tell my clients, you would only start a business with a written plan, so why would you plan for retirement without writing it down? Writing it down may increase your chances of success because you now have a guide.”

What works for younger generations may not work for those nearing retirement. They may fear it’s too late. That’s not true. You just need to address matters differently.

“Our current geo-political economic conditions have caused this loss of confidence in retirement,” says Doug Dahmer, CEO and founder of Retirement Navigator and Better Money Choices in Burlington, Ontario, Canada. “With aging populations and information coming out that there will soon be more retired people than workers, many political leaders and governments have begun to encourage older people to remain employed. What I would remind those that are nearing retirement and feel like they’ve fallen behind on saving is that they should focus on investing their time in practicing sound investor behavior by putting systems in place to ensure they are able to reach retirement knowing that they will be OK. This ‘OK’ can depend on what you want the retirement to look like—and how realistic it is. You need to create a year-by-year recipe that acknowledges when you are going to spend your money and tie that into your investment process.”

David Johnston, managing partner at Amwell Ridge Wealth Management in Flemington, New Jersey, has put together four pieces of advice that may appeal to all ages. He says, “To improve confidence in retirement, there are several things that can be done: 1. Start saving early: The earlier people start saving for retirement, the more time they have to accumulate wealth and build a secure retirement; 2. Increase savings rate: People can increase their savings rate by contributing more to their retirement savings plans or by setting up automatic contributions; 3. Diversify investments: A diversified investment portfolio can help protect against market volatility and reduce risk; and, 4. Consider working longer: Working longer can help people increase their savings and reduce the length of time they need to rely on those savings.”

What are the risks associated with retirement?

Once you’re in retirement, the risks don’t go away. In fact, they may compound, especially if their root cause is a lack of financial literacy.

Behavioral economists note irrational tendencies sway people towards sub-optimal decisions. They make choices based on emotions or knee-jerk responses. Fear can do that. They’ve never had the opportunity to practice financial decision-making.

That’s what financial literacy is all about. As you become more familiar with the playing field, you’re more apt to take unexpected or bad news in stride. You know there’s always a “next time,” so you know it’s important to avoid making a bad situation worse.

“We still don’t teach the average student/new professional coming out of college how to be financially successful,” says Brian Haney, CEO of The Haney Company located in Silver Spring, Maryland. “What we teach is how to spend more than you make, borrow for the ‘potential’ of a high paying career at some intangible juncture in the future, and sadly very little else. I think people’s loss of confidence is not localized to retirement; I think people have lost confidence because they routinely find themselves in over their heads and have never been given any helpful framework for financial success and wellness. Those fortunate enough to work with an advisor/professional tend to do better, but sadly most Americans don’t work with a professional. They have also lost confidence in many major companies and the financial institutions supporting them as well, which doesn’t help either.”

As before, the solution to this is to write it down. This isn’t rocket science. Millions have gone before you. Whether you buy a book and do it yourself or use the services of a professional and have someone else do it for you, setting up an easy-to-follow game plan will help you get around those times when you’re most likely to make a poor decision.

“You can improve your confidence with a financial plan that addresses things like savings, expenses, debt, social security timing, and taking retirement distributions in the most tax-efficient manner possible,” says Tom Kennedy, managing partner at Global Wealth Advisors in Houston. “This provides you with a clear and concise path forward that can empower you to make beneficial steps toward a successful retirement.”

What is the number one mistake retirees make?

Even with a plan, you aren’t immune to making the biggest mistake retirees make. You still might fall victim to asking the wrong question. Why would you do this? Because people are drawn to asking about what they can measure, not necessarily about what matters most.

“People need to reframe how they plan for retirement,” says Melody Evans, a TIAA wealth management advisor from Andover, Massachusetts. “Most people expect financial professionals to discuss retirement in terms of investment returns and want you to answer the question, ‘What magic number does my nest egg need to hit for me to retire?’ Instead, you should turn that question around and ask, ‘How should we plan for savings that will last the rest of my life?’”

How do I stop worrying about retirement money?

Ironically, while placing undue emphasis on what is measurable can lead to excess anxiety, it also offers a path to reduce that stress. Think about it. If you practice a game enough times, you’re more likely to know how to respond, no matter what your opponent throws at you. You’ll know what is more likely to succeed (and you’ll try to do that). You’ll also know what is more likely to fail (and you’ll try to prevent yourself from doing that).

The same is true with your retirement finances. If you spend the time to run enough practices—financial “what-if” scenarios—then you’ll become more comfortable knowing you’re prepared no matter what happens.

“The best thing you can do is actually project your own retirement,” says Brian Walsh, senior manager of Financial Planning at SoFi in Grand Rapids, Michigan. “Sometimes projections will show you are in a good spot, and other times they will show you are in a really tough spot. Either way, you know where you stand. Research suggests the simple act of using a retirement calculator or working with a financial planner to project your retirement increases confidence and the odds of a successful retirement.”

The greatest advice comes from that old standby, the Serenity Prayer. You remember that. It’s the one that says you should recognize the difference between what you can and cannot change. The same applies to your retirement.

“The key,” says Sall, “is to try to control only what you can control. You can’t do anything about much of what’s going on in the world today. The best thing you can do is beef up your retirement account and keep your skills current in case you need to produce some additional income in retirement.”

There’s no upside to getting down on your retirement, so seize the things you can and steer them in the direction that makes you the happiest.

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