Your Retirement Preparedness – Is it Too Soon to Panic?

You don’t have to have an extra-sensitive emotional antenna to sense stress all around. It’s there every day – stress at the traffic on our morning commute, stress getting through the workday, and then back to traffic stress getting home. And even at home, we can sometimes experience stress with our partners, stress paying the bills, and stress worrying about our health and financial security.

In fact, you’ll hear that reality is the leading cause of stress for those in touch with it!

Key Findings

• There is a looming crisis of retirement unpreparedness in America today.
• More than half of Americans (55 percent) are worried that they cannot achieve financial security in retirement.
• Record numbers of people are retiring without adequate financial resources.
• Americans are largely unaware of how much they need to save to produce a desired level of retirement income.
• Saving for retirement is difficult given inflation and other obstacles.
• Financial stress is taking a huge toll on Americans’ mental and physical health.

Why Do We Feel Financial Stress?

We feel stress when we believe that we do not have what it takes (the coping skills or resources) to deal with a perceived threat or loss. We also feel stress when we’re uncertain about whether that potential loss might occur, or if that threat is lurking around the corner.

Stress can be caused by real circumstances, or imaginary ones.

Some people have a harder time with the stress of an imagined situation becoming real. Others find the million possibilities of the unknown more stressful. What about you?

How Does Financial Stress Affect You?

Like any source of stress, financial stress can take a huge toll on your mental and physical health, your relationships, and your overall quality of life. Feeling beaten down by money worries can adversely affect your self-esteem, energy levels, sleep, and relationships.

Is Feeling Stress About Your Retirement Normal?

No matter which way you look at it, financial stress is a crisis that exists due to the conflict between where you believe you are and where you believe you need to be – and those assumptions can also be the root of stress. The data coming out of recent studies (unpacked below) suggests that Americans largely are unaware of how much they need to save to produce a desired level of retirement income.

Dealing with the idea that what we’re working so hard to achieve may be unattainable gives rise to a sense of loss and failure.

Is There A Looming Crisis Of Retirement Preparedness?

In the next few years, more Americans than ever will reach the traditional retirement age of 65. A study commissioned by the Retirement Income Institute and the Alliance for Lifetime Income found nearly two thirds of those approaching retirement age are unprepared and will struggle to meet their financial needs.

The National Council on Aging reported in February 2024 that “millions of older adults are struggling to meet their monthly expenses.” If this is an accurate measure, then they will not have the financial capacity to retire at 65 and will need paid work beyond the traditional full retirement age.

The media is buzzing about this crisis of retirement preparedness. “Retirement crisis looms as Americans struggle to save” is a CNN headline. Evidently, we’re seeing record numbers of people retiring without adequate financial resources, and Gen Xers and Millennials are being told to make space for their aging Boomer parents to move in with them.

What Do the Numbers Say?

According to the National Institute of Retirement Security 2024 Report, 79% of Americans agree that there is indeed a retirement crisis. That’s way up from 67% in 2020, and shows that their confidence is plummeting. 

More than half of Americans (55%) are worried that they cannot achieve financial security in retirement. And 73% of respondents said recent inflation has them more concerned than ever. Click here to read the report.

If you’re stressed about your financial future, you’re clearly not alone. More than half of respondents in each age group believe their savings are not on track.

Why Saving For Retirement Can Be Difficult

Saving is becoming more difficult as Americans deal with inflation and other obstacles such as escalating housing costs, health care, and long-term care costs. A wide body of research finds that payroll deduction is the key to helping households build retirement savings and establish retirement security.

However, almost half of private sector employees (57 million Americans) do not have the option to save for retirement at work and must manage their own individualized savings plans.

Individualized 401(k) savings plans were never intended to replace pensions – they were meant to be a supplemental savings vehicle. We’re expecting 401(k)s to do a job they’re not designed for. Moreover, all the risk is shifted onto employees.

These individualized savings systems require a great deal of financial knowledge and significant effort by employees from the start of their career and throughout their life. We’ve written a separate blog about this – to read WestStar’s 11 Sure Steps to Pursue Your Ideal 401(k) Plan Retirement Outcomes, click here.

How Much Do You Need To Retire Comfortably?

Today, Americans think they need almost $1.5 million to retire. Their “magic number” savings goal for retirement has increased by over 50% since 2020. Is this realistic?

At WestStar we believe that every individual and their circumstances is unique. What makes them tick is not as simple as clockwork. And for all their differences, there are only a handful of data points that define success.

• Having enough money to enjoy retirement: How long you’ll need to rely on your life savings would be easy if we knew the number of your days. But we don’t.
• How much you spend: Two individuals with identical assets but different spending rates will have different degrees of success. An individual spending $50,000 a year vs one spending $150,000 will have very different needs. The good news? This is something you can control.
• How much you save: Your ability and determination to save will impact the likelihood of reaching your retirement goals. Starting early is paramount: if you prioritize savings and investing, you’ll get there sooner and with more options than those who don’t. Simple!
• Everything else: There are lots of other variables, like how much you earn and how your investments are structured. Then there’s inflation – the more things increase in price, the more you’ll need in present value terms. Importantly, there’s your health, and the rising cost of health care in retirement. The bad news? Things like inflation and the costs of health care are completely out of your control.

Why Stressing About Your Retirement May Be a Good Thing

Although most people view stress as a bad thing, maybe it isn’t all bad. Ask yourself: “what is my stress telling me, and what can I do to alleviate it?” After all, it’s not stress itself that freaks us out, but our reaction to it.

It’s worth noting that financial stress may open the door to positive outcomes – to changes such as budgeting, a new job, increased savings, better spending habits, and managing personal finances proactively.

Financial stress may also lead you to seek the guidance and advice of a financial professional in developing and managing a financial plan that targets your hopes, dreams and goals.

The 2023 FPSB Value of Financial Planning Consumer Research study shows over half of consumers who work with a CFP® professional reported that financial planning has positively impacted their mental health and family life. Furthermore, 4 out of 5 feel financially secure. To read the full report, click here.

Retirement Planning For the Long Game

With advances in technology, people could live well into their 90s, and they must consider the implications of another 25 to 30 years of life once they retire. As a result, having a financial plan based on holistic retirement planning has never been more important.

We believe that lifelong retirement income is the reward for meticulous planning. And whether investing or planning for retirement, your greatest asset is time.

Naturally, the best possible time to get financial planning advice and guidance is when you’re as many years away from retirement as possible. This allows you to find the most appropriate investment, risk, and tax strategies for your long-term success.

Our financial advisors can help an individual to plan for their retirement by accurately estimating the needed income and planning the steps to secure it.

These may include a combination of measures like fully funding their 401(k), making catch-up contributions to their IRA, leveraging their home equity for a HELOC, taking deductions on their tax return to reduce taxable income, tapping into cash value policies, getting disability coverage, downsizing, and other tactics to hit their needed income.

Additionally, they will help retirees spend down their nest egg at the right rate in post-retirement years so it doesn’t run out.

That said, many of those who continue to work as they get older do so both because of financial necessity and the enjoyment they get from their work. So maybe it’s time for us to stop thinking about 65 as the “normal” retirement age. The right retirement age is when we can financially support the things we want to do in life, and by taking away that hard deadline, we can free ourselves from the misplaced idea that achieving a rewarding retirement is unattainable.

If you have questions about your specific circumstances, or want to talk about developing a financial plan to address your retirement goals and aspirations effectively, please get in touch.

We welcome the opportunity to chat with you and wish you every success in the future.

Sam Gullette & Erik Alexander