Yet Social Security, Inflation and Market Volatility Bewilder Many
SAN MATEO, CA–(Marketwired – Mar 27, 2015) – More than half (55 percent) of Americans are considering working during their retirement, and not simply out of necessity, according to Franklin Templeton's 2015 Retirement Income Strategies and Expectations (RISE) survey.
The survey, which polled 2,002 American adults, also found that 30 percent of those ages 18 to 24 never plan to retire.
"Conventional thinking and attitudes about what it means to retire are changing. By taking action now — via saving and planning for retirement — individuals can help ensure that they're able to embrace this next phase of life. They can also reduce the stress increasingly associated with not having enough money to retire," said Michael Doshier, vice president of retirement marketing for Franklin Templeton Investments.
Retirement Needs a Rebrand
Retirement is no longer synonymous with the end of working life, and expectations regarding retirement lifestyles are evolving. Many of the survey's respondents have accepted the possibility of delaying retirement and continuing to work, some out of necessity and some by choice.
The majority (61 percent) of survey respondents say that if they were or are unable to retire as planned due to insufficient income, they have adjusted or would adjust their plans to delay their retirement, with the survey's youngest respondents (aged 18 to 24 years) most likely to say they would keep working (74 percent).
Moreover, nearly 20 percent of non-retired respondents say the most likely cause of a retirement delay would be because they enjoy working. However, only 28 percent of all adults expect working to be a primary source of income in retirement.
Among those who plan to retire, when asked what they look forward to in retirement, only 36 percent say not working. Many look forward to pursuing hobbies (46 percent) or learning a new skill or subject (22 percent), both of which could be explored through a new job or career.
Retirement Stress, Top Concerns and the Unknown Stress
surrounding retirement savings and investments remains high, with 67 percent of Americans experiencing some level of stress. Stress levels peak within 15 years of retirement, with 76 percent reporting stress.
Topping the list of retirement concerns includes running out of money (27 percent) and health/medical issues (27 percent). Survey respondents aged 25 to 34 years are most worried about running out of money (36 percent), while older respondents aged 65 to 74 years are most concerned about health/medical issues (52 percent).
Lack of understanding surrounding retirement income needs and planning also seems to be driving stress levels among respondents. The findings show that those who do not understand their retirement income plan are significantly more likely to feel stress and anxiety than those who do understand their plan (86% vs. 66%, respectively). And the fact that nearly 40 percent of pre-retirees are not saving for retirement could be adding to stress and anxiety levels.
What You Don't Know Can Hurt You
When it comes to lack of understanding regarding retirement issues, Social Security appears to be a significant driver of confusion. A few factors can be pinpointed: (1) the amount of their current income Social Security will replace (39 percent do not know with a high degree of confidence); (2) when to start to take the benefit (22 percent of pre-retirees don't know); and (3) whether it will provide expected income in retirement (37 percent are not confident that it will).
Although delaying the age at which you receive Social Security may result in higher benefits, and thus increased retirement income, the majority (59 percent) of retirees say they took Social Security before full retirement age. Only 16 percent started the benefit at full retirement age, and a mere 7 percent of retired Americans delayed until after full retirement age. This is an important decision that impacts retirees' income. More education and tools can help investors increase their benefits.
The lack of understanding is also apparent when examining the reasons why Americans choose to initiate their Social Security benefit. According to the survey, about two in five (42 percent) of those who began (or expect to begin) taking Social Security before full retirement age, did so (or plan to do so) simply because of eligibility. Only about one in five (21 percent) say the primary reason for taking the benefit early is because they needed or expect that they will need the money.
Retirement Expenses and Spending
The survey found that while Americans are reasonably good at estimating their expenses at retirement, they tend to underestimate the impact of inflation later in retirement — typically expecting retirement expenses to remain flat throughout retirement. Unfortunately, inflation can cause a sharp increase in expenses over even a 10- to 15-year period. For many, retirement may span even longer, approaching 30 to 40 years.
When it comes to actual spending in retirement, the survey found that as retirement progresses, retirees report an increase in spending from their pre-retirement levels: 28 percent (reporting an increase 1-5 years into retirement); 42 percent (6-10 years), 44 percent (11+ years) — or 37 percent for all retired respondents.
Looking at expectations in terms of their current income, over a third (36 percent) of non-retired respondents expect to live on an amount less than 70 percent of their current income. This may sound optimistic to some, but close to half of retired respondents report (45 percent) that they live on less than 70 percent of their pre-retirement income.
Retirement Post the Financial Crisis
"Overall, concerns about market volatility have been decreasing since the financial crisis, but it is clear that younger generations are still trying to reconcile the macro environment with the appropriate investment approach. To some extent, these younger investors exhibit a heightened level of concern regarding the ability of the market to generate attractive long-term returns on their investments," said Ed Perks, chief investment officer of Franklin Equity Group and portfolio manager of Franklin Income Fund.
"I would encourage investors to focus on the long term and tune out the noise generated by day-to-day market moves. I'd also remind investors that, although the low interest-rate environment makes the search for attractive yield somewhat challenging, we continue to find attractive opportunities through a disciplined investment approach, focused on fundamental research."
Americans continue to express concern surrounding market volatility. When asked whether or not they would be concerned if their retirement investments fell by varying percentages (20, 10 or 5 percent), most respondents expressed concern at all levels of decline (81, 67 and 43 percent, respectively). The survey does, however, indicate that Americans are becoming less concerned about volatility over the last few years. Today's levels of concern are indeed lower compared to 2013 (87, 77 and 52 percent, respectively).1
Interestingly, one-third of the survey's younger respondents (aged 18 to 34) are willing to pay to protect their retirement assets from volatility, compared to 26 percent overall. Similarly, half of respondents ages 18 to 34 would be willing to pay to protect themselves from outliving their retirement savings. This more risk-averse sentiment among Millennials has persisted and is contrary to what many would have anticipated.
"Looking historically, it is most often inaction with regard to planning and saving and not market volatility that has had the greatest negative repercussions," added Perks. "Whether your retirement is a ways off or around the corner, it is important to consider your investment goals, make a plan, and diversify to protect against short-term market shifts while working towards your longer-term objectives."
Looking Forward to Retirement All
things considered, 93 percent of survey respondents who plan to retire are looking forward to their retirement. "Despite the concerns and stress, people are overwhelmingly looking forward to their retirement years," said Doshier. "One simple way to lessen anxiety around retirement: start saving and work with a financial advisor to develop a written plan. Taking steps to understand what your income sources will be in retirement and how to match them with a realistic estimation of future expenses, can help take some of the mystery — and the worry — out of thinking about retirement."
The Franklin Templeton Retirement Income Strategies and Expectations (RISE) survey was conducted online among a sample of 2,002 adults comprising 1,001 men and 1,001 women 18 years of age or older. The survey was administered between January 8 and 22, 2015, by ORC International's Online CARAVAN®, which is not affiliated with Franklin Templeton Investments. Data is weighted to gender, age, geographic region, education and race. The custom-designed weighting program assigns a weighting factor to the data based on current population statistics from the U.S. Census Bureau.
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1. Source: Franklin Templeton Retirement Income Strategies and Expectations (RISE) Survey, 2013. The survey was conducted online among a sample of 2,002 adults comprising 1,001 men and 1,001 women 18 years of age or older. The survey was administered between January 10 and 22, 2013 by ORC International's Online CARAVAN®, which is not affiliated with Franklin Templeton Investments.