Terrified Clients Say Their Retirement Is in Question…

Is the financial advisor the solution?

by Eric Henderson

This past December, the Federal Reserve raised interest rates by half a percentage point, the latest hike in its fight against inflation. Rising rates have compounded the issue of U.S. national debt, which exceeded $31 trillion for the first time in October 2022, leaving many investors feeling the pressure of a volatile market.

On Wall Street, concerns surrounding America’s mounting debt load have diminished confidence in the government’s ability to repay what it owes. Facing a potential recession and persistent market volatility, investors, especially those approaching retirement, are anxious. According to Nationwide’s eighth annual Advisor Authority survey, powered by the Nationwide Retirement Institute, one third of advisors (34%) say their pre- and recently retired clients are canceling or delaying retirement.

Advisors and financial professionals today are in a crucial position to help clients and prospects prepare for the considerations and realities of life after retirement. As market conditions and retirement portfolios fluctuate, advisors may offer peace of mind and sound financial advice, from discussing inflation in personal terms and reviewing the history of capital markets, to offering solutions that safeguard against market loss and mitigate longevity risk, like annuities.

Economic Trends Stoke Retirement Fears

Investors today have a lot on their minds—namely inflation, which has led 38% of women and 26% of men to rethink when they can retire. In addition, signs of inflation and recession are leading investors to rethink where they can retire, though women are more concerned than men (44% vs. 28%).

The threat of a recession has also created anxiety around investors’ ability to achieve their long-term retirement goals. A majority (51%) of investors who are not retired say they are terrified about their long-term and post-retirement financial futures, with nearly half (43%) checking their retirement account balances more than three times a week in today’s volatile market. This habit is more common among women than men (53% vs. 34%), even though men are slightly more likely to say they are terrified about their long-term financial futures than women (55% vs. 49%, respectively).

There is no doubt that client anxiety is at an all-time high, but perspectives differ between men and women who are not retired. Men (45%) are marginally more likely to say that they are nervous about their post-retirement financial future than women (38%) and women are twice as likely to say their retirement expectations will change significantly if the U.S. economy enters a significant downturn (37% vs. 19%).

The economic concerns of the moment can lead to short-sighted, emotional decisions that could have a negative long-term impact on financial plans. As we start a new year, now is a great time to sit down with clients and keep them on a productive retirement path by helping them establish a long-term plan or revisit the plans already in place to ensure alignment with their goals in a changing environment.

Advisors Can Help Clients Navigate Choppy Waters in 2023

America is unlikely to experience a recession similar to the 2008 financial crisis, with economists instead predicting a “pasta bowl recession,” where we’ll face a less sharp economic decline and recovery, with no dramatic cliffs or spikes in the market. Risk tolerance will remain crucial and advisors and financial professionals should take the time to speak with their clients about the implications of a recession on their portfolios–and how to prepare.

While on the topic, it is interesting to note that women are slightly more likely than men to take steps to adjust their retirement portfolio in light of recent market volatility (35% vs. 26%). This proactive mindset may help explain why 41% of women feel confident in their financial plan despite market volatility, compared to just 11% of men.

Regardless of trends, your knowledge and expertise can be the difference in guiding clients toward successful retirement. Educating investors about the potential impacts of inflation and a recession can set the groundwork for decisions based on facts, not fear. For example, the most common inflation benchmark is the consumer price index (CPI), which is based on overall consumer prices in urban areas. As CPI is a national average, individual households will experience inflation differently depending on what they buy and where they live.

Second, remind clients that market fluctuations are normal, their financial plan is for the long term, and it is common to stay invested in the stock market to build wealth. From 1914 to 2022, U.S. inflation has averaged 3.29% annually; by comparison, the S&P 500 Index averaged an annual return of 11.82% from 1928 through 2021. Help clients understand that staying the course and sticking to the plan can help them weather all phases of the business cycle and build wealth for retirement.

Lastly, macroeconomic stressors are inevitable, but the impact on retirement planning is profound, underscoring the need for strategic guidance from advisors and financial professionals. As the share of investors canceling or delaying retirement continues to grow, advisors must address the concerns of clients and prospects to prevent short-sighted decision making.

Advisors Guide Clients Toward the Right Solutions for Their Goals

Despite the economic turbulence of recent years, less than a quarter (24%) of all investors preparing for retirement say they currently have enough guaranteed income in their retirement portfolio to weather a recession. Advisors and financial professionals can boost client confidence by helping them understand the value of protection solutions, like annuities, that can guarantee income in retirement and guard against market volatility.

High inflation, coupled with slowly rising bank credit rates, can make annuities a more attractive solution for some clients. For example, registered index-linked annuities (RILAs) can offer protection from market risk and increase growth potential at the same time. Annuities are also a useful tool when other tax-favored investments, like 401(k)s and IRAs, are maxed out.

As we head into 2023, many unknowns await, leading clients to become more fearful about their ability to retire. While we cannot predict what comes next, there is no time like the present for advisors and financial professionals to educate clients and prospects, reinforce the importance of sticking to plans, and demonstrate the value of incorporating various retirement solutions into portfolios.