What 2020 has taught us about workers, retirees and building a better portfolio
by Sri Reddy
Mr. Reddy is senior vice president, retirement and income solutions at Principal Financial Group®. Visit principal.com
2020 feels like an unending crisis. The unexpected twists and turns have affected how many of us manage our day-to-day lives. In communities around the world, families are struggling. And despite equity markets showing an uptick, the struggles and challenges for main street businesses are still very real. Systemic imbalances between people who are faltering financially and those who are able to stay afloat feel greater than ever.
I believe that crisis reveals character. We are often stronger than we think, and what I’m seeing today in our clients, colleagues, and neighbors is resilience and determination. Clearly, this reflects some cautious optimism as well.
Consumers are still shaken by the pandemic and working to manage impacts on their retirement and savings. The implications of the pandemic and recent economic volatility bring new considerations for workers and retirees planning for and managing future finances.
According to the latest Principal® Retirement Security Survey, nearly three-fourths of workers anticipate the pandemic will somehow impact their path to retirement. As I think about this, and how best to help support employers, financial professionals, and consumers, I want to point out that uncertainty is and will always be a part of life. The good news is we can take small measures now—despite current challenges—to establish and maintain long-term resilience against unpredictability.
Our research shows us that both workers and retirees are thinking now more than ever about their health and financial security. Many retirees are feeling confident they will have enough money to live comfortably for the next few months and during the rest of their retirement years.
However, for workers, confidence is wavering. When it comes to imagining what their future life will be like, workers aren’t feeling prepared for retirement. And, only 14% of them feel very confident they’ll have enough money saved to live comfortably.
Stay The Course
But, there’s good news: Workers and retirees seem to be staying the course. Despite the concerns noted above, workers and retirees continued to employ a “keep calm and carry on” mentality with their investments. We’re seeing that most consumers are staying the course and not withdrawing extra money from financial accounts—and some are even saving more.
According to our research:
- 8 out of 10 consumers avoided withdrawing extra money from their financial accounts due to effects of COVID-19 and market volatility.
- 9 out of 10 consumers don’t plan to tap into their financial accounts in the upcoming months due to effects of COVID-19 and market volatility.
On an emotional level, retirees feel more confident—and ultimately report being happier—when there’s certainty to their monthly income. Besides having a pension (a less-frequent occurrence as time goes by) and Social Security, respondents reported benefits of building additional guaranteed lifetime income. The certainty that an income annuity provides can boost confidence and reduce stress in retirement.
Retirees report that guaranteed income sources has:
- Enabled them to feel their basic expenses are covered (89%)
- Offered them peace of mind (78%)
- Provided predictable retirement income (67%)
- Enabled them to be less concerned during bouts of market volatility (56%)
- Allowed them to maintain their lifestyle in retirement (56%)
- Made it easier to manage a budget (40%)
We know that annuities tend to mystify many consumers. But, when they’re explained in terms of maximizing income and driving happiness and confidence—as seen in our data above—consumers tend to respond with more positivity.
As one of the few products that can reduce or eliminate market risk while offering a guaranteed monthly income for life, the head and the heart have a chance to come together here to show that annuities can help consumers have enough, save enough, and protect enough for their future. (Guaranteed income provided through the purchase of an annuity is guaranteed by the claims-paying ability of the issuing insurance company.)
Meeting Consumers On Their Financial Journey
As we step forward into 2021, those of us in the financial services industry have a unique opportunity to reflect on what’s most important to individuals and businesses—and seek out ways to offer extra support and recovery throughout the new year.
To better understand where consumers are in their financial journey, we asked our survey respondents about their personal financial advice needs. Both workers and retirees expressed that they’re looking for help and want financial advice from expert sources:
- Workers reported that their top financial advice needs to include managing retirement savings once retired (41%), figuring out when to start receiving Social Security benefits (31%), and retirement saving advice when selecting investments (29%).
- Retirees are looking for help with selecting Medicare or Medicaid plans (30%), how to manage retirement savings (30%), and getting retirement saving advice when selecting investments (30%).
Besides knowing that consumers need added retirement savings and spending guidance, we also know that working with a financial professional is a growing interest for both workers and retirees. The percentage of consumers who work with financial professionals jumped several percentage points compared to pre-pandemic survey findings: from 37% (Q1) to 40% (Q4) for workers and from 45% (Q1) to 57% (Q4) for retirees.
Reframing The Retirement Conversation
With the signing of the SECURE Act into law in late 2019, we took an important step towards creating a better framework for stronger retirement income solutions. According to a second study we recently conducted in conjunction with The Longevity Project, we see a real need for industry, employers, financial professionals, and policymakers to collaborate and increase access to annuities and similar lifetime income solutions. The availability of these options will help ensure American workers have appropriate access to a more secure retirement and more confidence that they will not outlive their savings.
It’s a step in the right direction, and although there’s still work to be done—I feel good about what our future holds and the direction we’re headed. As retirement industry leaders and financial professionals, this is the time to strengthen your personal and professional connections: Create new opportunities for dialogue, build educational groups, and get involved in your communities and with your clients. Together, by reframing the retirement conversation with the information and thought starters discussed here, we can help people retire with dignity and confidence—and work towards a stronger financial future for all.
1 Principal® Retirement Security Survey (Q4), November 2020. More about this survey: In November, Principal conducted its fourth Retirement Security quarterly pulse survey with nearly 1,200 retirees and workers across the U.S. Through this research, we’ve been able to track key pre- and post-pandemic consumer activities and gain insights into specific concerns and actions surrounding saving for retirement, worker and retiree financial behaviors, market volatility, and COVID-19.
2 EBRI 2020 Retirement Confidence Survey.