Much has been said about the dire situation many Americans might be in when they reach their golden years. Sticky inflation, soaring interest rates and the resumption of student loans have all put a dent in savings and left little to set aside for retirement.
Yet, not all is doom and gloom when it comes to retirement. Indeed, a new GOBankingRates survey found that 40% of Americans don’t plan on working once they retire — underscoring the sentiment that they feel financially secure and prepared for their senior years.
“Many Americans feel confident they won’t have to work once retired due to diligent financial planning, robust retirement savings and an optimistic outlook on Social Security benefits or other sources of income,” said Cliff Ambrose, founder, FRC and wealth manager at Apex Wealth Management.
This confidence may also stem from a perception of stability in their current financial situation and a belief that they have adequately prepared for retirement, he added. So what are these Americans doing right?
They Have a Plan
“Market highs like the one we just saw in the fourth quarter can certainly contribute to people feeling more confident about being able to retire when and how they want,” said Rita Assaf, vice president of retirement products, Fidelity Investments. “However, what we find makes the biggest impact is having a plan.”
For instance, Fidelity’s State of Retirement Planning study, released March 12, shows each generation has started to plan for retirement seven to eight years earlier than the last, which is contributing to higher confidence levels, said Assaf.
“In fact, having a plan in place is one solid way to help people weather any storm, as we’ve seen the last several years with the pandemic, inflation and market volatility. When it comes to long-term investing, staying focused on the big picture is critical,” she added.
They Are Doing the Math
The GOBankingRates survey showed that confidence grows as Americans get older.
“I would bet that these older Americans are doing their calculations and have a good idea of what they need to live on, and what they can count on having in their investments. They know their numbers and they like what they see,” said Bobbi Rebell, CFP, founder of Financial Wellness Strategies and author of “Launching Financial Grownups: Live Your Richest Life by Helping Your (Almost) Adult Kids Be Everyday Money Smart.”
Rebell added that these Americans are doing the math and figuring out that they can make their post-retirement budgets work.
“They are also doing advance planning on how much they will be spending and what their life will cost them. They are both optimistic and hopefully, realistic,” she added.
They Have a Higher Homeownership Rate
According to Austin Kilgore, an analyst for the Achieve Center for Consumer Insights, another important consideration is the higher homeownership rates among older consumers, especially those who are done paying off their mortgages.
“The notion of ‘aging-in-place’ — where older, empty-nester homeowners continue to live in the larger homes they raised their families in, rather than moving down into smaller housing — is another important factor,” said Kilgore.
He added that while the aging-in-place trend is one of many factors contributing to the shortage of single-family homes, for homeowners nearing retirement, staying in a home that’s fully paid off and has benefited from market appreciation can provide a strong financial base.
What Might They Be Overconfident About?
As Ashley Weeks, vice president wealth strategist, TD Wealth, said, “Trees don’t grow to the sky and market performance over the last year is no indication of future returns.”
In turn, Weeks argues that investors should be realistic about their time horizon and build a portfolio with the appropriate level of risk. “Failing to account for risk due to an optimistic market outlook can be disastrous,” said Weeks.
In addition, Weeks noted that the two main levers that control retirement success are the rate of savings and the rate of spending.
“Inflation remains above the Fed target and retirees who are past the accumulation and savings phase — by choice or necessity — may be surprised by the costs of living in retirement,” Weeks added.
In addition, some experts said that despite their diligent savings habits and prudent investment strategies, many Americans may exhibit overconfidence in their retirement plans by underestimating potential financial and health challenges.
“This includes overlooking unexpected healthcare expenses, inflation or market fluctuations that could impact their retirement savings,” said Apex’s Ambrose.
Finally, If their financial assets are in risky investments, which include stocks, and also in illiquid investments such as real estate, they may need to make some adjustments into less risky and more liquid investments, according to Rebell.
“Money you can’t access, such as real estate, can be tough to live on. You don’t want to be house rich and cash poor when you retire. You also need to be aware that investments in the stock market can be volatile and make sure you are diversified appropriately,” she added.
