Despite Concern, Many “Plan” to Address Risk by Being More Frugal
MINNEAPOLIS – August 14, 2017 – Although Americans rank inflation as their main economic worry, many do not have a proper strategy in place to address what could be a significant risk to retirement plans, according to a new study* from Allianz Life Insurance Company of North America (Allianz Life®).
When asked about their main economic worries today, the majority of respondents put inflation at the top of their list– with 32% saying they were either “panicked” or “very worried” about it. Despite being a top concern, the study found that 64% of respondents do not have a financial plan that addresses the rising cost of living in retirement. Of those who do, 51% claimed their financial “plan” to address it was to “be more frugal with money” when they retire.
“Although it may be an option for managing expenses, frugality is not a financial strategy that will mindfully and effectively address the rising cost of living throughout retirement, especially one that could last 30 years or more,” said Allianz Life Vice President of Consumer Insights Deb Repya. “There are many factors to consider when planning a long, comfortable retirement and addressing inflation is a critical piece of that puzzle.”
Many Americans admit they will need to live more modestly in retirement and expressed concern about paying for essentials, particularly health care, as costs rise. Fifty-four percent of those surveyed claimed they were either “terrified” or “very concerned” that the rising cost of living would affect their ability to pay for healthcare. The same concerns were expressed about long-term care (45%), housing (33%), groceries/food (29%), and travel/leisure (27%). Nearly four out of 10 respondents expressed they were either “panicked” or “very worried” they might not be able to afford the lifestyle they want in retirement due to the increased cost of living.
Key Findings Snapshot:
- Inflation tops list of worries about the economy today yet 64% of respondents do not have a financial plan that addresses the rising cost of living in retirement. Of those who do, 51% claimed that “plan” was to “be more frugal with money.”
- Fear of rising healthcare costs still drives worry; 54% of respondents were either “terrified” or “very concerned” that the rising cost of living would affect their ability to pay for healthcare.
- Respondents estimate the average cost of living will increase by 4.4% each year in retirement.
Misunderstanding Inflation and Finding a Solution
While the study surfaced worries about the rising cost of living and revealed a lack of financial planning to address that concern, it also showed that Americans may not fully understand how inflation will impact them in the future. Respondents overestimated how much the cost of living will rise during retirement by predicting an average increase of 4.4% per year.
Even more extreme, 31% of respondents thought the cost of living would go up between 5-10% per year and nearly one in 10 (8%) reported costs would increase more than 10% each year. These predictions were made despite the fact that the average inflation rate in the United States for the last 20 years was only 2.15%.
“While this study illustrates an understanding that inflation is an important retirement planning issue, it also shows there are still misconceptions about inflation and how to address it as part of a sound, long-term financial strategy,” added Repya. “It’s critical for Americans to find specific solutions that help pay for health care and other long-term expenses on top of day-to-day essentials, especially as costs rise.”
While addressing inflation during retirement can be a challenge, Americans expressed interest in solutions that could provide guarantees with the ability to increase over time. The vast majority (73%) of respondents preferred the idea of a financial product that starts with a slightly lower income rate, but offers the possibility for income increases over time compared to one that has a higher, but fixed, rate. Repya recommends having a conversation with a financial professional to build a strategy and find solutions that will help manage inflation and expenses in retirement.
For more details about increasing income in retirement and other retirement planning topics, view the Allianz Answers videos and resources here.
About Allianz Life Insurance Company of North America
Allianz Life Insurance Company of North America, one of FORTUNE’s 100 Best Companies to Work For® in 2017, has been keeping its promises since 1896. Today, it carries on that tradition, helping Americans achieve their retirement income and protection goals with a variety of annuities and life insurance products. In 2016, Allianz Life provided a total of $2.6 billion in benefit payments that supported policyholders’ financial objectives. As a leading provider of fixed index annuities, Allianz Life is part of Allianz SE, a global leader in the financial services industry with 142,000 employees in more than 70 countries worldwide. More than 85 million private and corporate customers rely on Allianz knowledge, global reach, and capital strength to help them make the most of financial opportunities.
*The Allianz Life 2017 Inflation Study was conducted by Ipsos via their eNation Online Omnibus in July 2017. The survey was completed via Ipsos’ iSay/Amario Panel with 1,213U.S. adults age 18+, and was commissioned by Allianz Life as an update to the 2016 Inflation Study conducted in March 2016.