Reconsidering The Nest Egg
by P.E. Kelley
There is a nostalgic view of retirement readiness that embraces a time-tested discipline of saving first, regularly and without deviation, to arrive at retirement with an adequate and reliable income stream. Belief in this rather straight forward approach appears to be shaken, however. More and more younger investors are beginning to question the viability of their income strategy and have begun to amend their plans — to save more, to invest more aggressively and, in many cases, to extend their retirement timeline, including ‘un-retiring’ for older investors, to supplement their accumulation target.
Tom Olsen is senior Vice-President for Financial Distribution with F&G Annuities & Life. In a recent F&G survey, Retirement Reconsidered 2024, his research reflected this growing malaise among investors, particularly younger investors. Olsen spoke with us about the questions they have today about income-adequacy, as many wonder if they will indeed have enough money to retire when the time comes.
PEK: Let’s start with what your study discovered about Gen-X. What are the things giving them pause about their own retirement readiness?
TO: Generation X has indicated a growing uncertainty and concern around their financial readiness for retirement. Our study found that 71% of Gen Xers are considering or have pushed back their planned retirement date, an increase from 65% last year.
Zooming in on the underlying reasons, Gen Xers are feeling nervous for several reasons. Their top concerns include fears of not having enough money for retirement (49%), inflation (47%) and worries about a recession or stock market downturn (31%).
Given the ongoing economic volatility in the US, many Gen Xers may feel unsure of their next steps. However, with advice from financial professionals who can arm individuals with the right combination of tools they need for success, many of these anxieties can be alleviated.
F&G’s survey found only half of Gen Xers are currently working with a financial advisor. This is an important first step in building a retirement plan. Additionally, Gen Xers should look at products that can provide peace of mind by offering a mix of upside potential and downside protection, like fixed indexed annuities (FIAs) and registered index-linked annuities (RILAs). Yet only 19% of Gen Xers currently own an annuity.
PEK: The study reveals that pre-retirees have begun to reconsider “what retirement means to them, and that may look different from previous generations.” How should advisors, in turn, reconsider how to help them prepare?
TO: With so many major events and uncertainties impacting people’s finances, having a financial advisor has never been more critical. However, 42% of all respondents over 50 do not currently receive advice from financial professionals.
In working with Gen Xers, advisors should consider the specific concerns impacting them. Our survey found that the biggest of these concerns is running out of money in retirement and the impact of inflation on their savings.
Advisors should also encourage pre-retirees to rethink how they view retirement, moving beyond the numbers to help clients plan for overall happiness. This involves not just creating a diversified financial portfolio but also a ‘life portfolio’ that ensures well-being in retirement.
Ultimately, our survey reinforces that retirement isn’t just a number; it means different things to different people. Advisors must work to uncover these individual meanings and focus on helping clients achieve their personalized retirement goals.
PEK: As of June 2024, the US inflation rate was 3.0%, just slightly higher than where the Fed would want it to be. Still, many pre-retirees, as well as those already in retirement, are nonetheless anxious about it. What’s driving this?
TO: Although the US economy has showed steady growth since the pandemic and subsequent higher prices of the last few years, inflation continues to be a significant driver of retirement decisions. Half (49%) of pre-retirees over 50 that are either considering or have pushed their retirement back are doing so because of inflation worries. Meanwhile, 44% of retirees and those who have considered rejoining the workforce after retiring cite inflation as a reason.
While the inflation rate is trending down, it can still impact those on fixed incomes. Even the slightest change in costs of living, healthcare and other essential expenses could significantly impact retirement savings and overall financial security. This is leading many to delay their retirement or re-think their financial strategies to ensure they can maintain their standard of living in retirement.
PEK: The S&P is up around 20% over the past year, but the study shows that investors remain concerned about their ability to continue growing retirement income. How are advisors addressing this concern?
TO: Over the last few years, we’ve noticed American investors becoming increasingly distressed about their financial futures, compared to a few years ago. However, many are still not taking action to address their concerns. This is where advisors can step in and respond.
For advisors with clients concerned about inflation running out of money in retirement, or other factors that may affect their financial future, it’s essential to emphasize the importance of taking proactive steps without being reactive or panicked, regardless of the state of the economy.
Instead, advisors should respond by working collaboratively with their clients to help them design a roadmap and solution for long-term success based on individual needs as opposed to trying to predict market conditions as it relates to their retirement investments and products.
PEK: What about the growing constituency of those ‘un-retiring’? What factors are bringing people back to work?
TO: For many, work is not just a means of financial security but also a source of personal fulfillment and mental stimulation, making the idea of returning to the workforce an appealing option even after retirement. Almost half (45%) of those considering coming out of retirement say they enjoy the challenge/stimulation from working, while 27% cited loving what they did for work.
However, this doesn’t necessarily mean these individuals are returning to a traditional 40-hour work week. Many retirees are seeking part-time roles that allow them to stay engaged without the full-time commitment that they are used to. This suggests that for many retirees, the decision to un-retire is not about returning to the grind of a full-time job but rather about finding a balanced way to stay active, engaged and fulfilled.
Ultimately, retirement today looks different for everyone and there is no one-size-fits-all answer when it comes to ensuring a comfortable retirement. By embracing new opportunities and putting individuals on a customized path based on their needs and wants, the journey to retirement will be just as rewarding as the destination.
