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The S&P 500 and the Bloomberg Aggregate U.S. Bond Index are higher by 17.4% and 1.8%, respectively, year-to-date. Those are decent performances to be sure, particularly those delivered courtesy of equities, but challenges remain.
In fact, the clients displaying the most concerns about broader market outlooks and macroeconomic headwinds are likely to be those in vulnerable segments, namely retirees and those nearing retirement. Sure, stocks and bonds are higher this year, but bonds have a long way to go to recoup last year’s losses. Additionally, retirees and pre-retirees continue grappling with the ill effects of inflation, which triggered the 2022 repudiation of fixed income assets while sapping income and purchasing power.
Fortunately, retirement issues and planning are among advisors’ core competencies and on these fronts, advisors are needed now more than ever. Retirement planning is an evolving paradigm and that in order to best serve clients, staying abreast of those shifts is critical.
With the that in mind, insights from a recent Schroders survey on retirement are worth examining.
What the Survey Says
Whether or not it implies clients are outright delaying retirement should be examined by advisors on a client-by-client basis, but it’s clear that some clients are putting off taking Social Security.
“According to the 2023 Schroders US Retirement Survey, only 10% of non-retired Americans say they will wait until 70 to receive their maximum Social Security benefit payments,” notes the asset manager. “This includes 17% of non-retired respondents on the verge of retirement (ages 60-65).”
On the surface, delaying receiving Social Security is a positive. Math proves as much. In fact, the Federal Reserve’s 2019 Survey of Consumer Finances indicates essentially all workers currently in the 45-62 age range would be better off waiting beyond 65 to claim Social Security. Those that wait until they’re 70 stand to reap an additional $182,370 in today’s dollars, according to the study.
This is where advisors should consider stepping because many clients don’t want to wait to claim Social Security. That could be the result of inflation, the 2022 bear market, a weaker economy or all of the above.
“Overall, 40% of non-retired respondents plan to take their Social Security benefits between 62-65, leaving them short of qualifying for their full retirement benefits,” adds Schroders. “The choice to forgo larger Social Security payments is a deliberate one, as 72% of non-retired investors – and 95% of non-retired ages 60-65 – are aware that waiting longer earns higher payments.”
Two More Big Retirement Issues to Ponder
Further cementing the notion that retirement planning and Social Security are fertile territories for enhancing client relationships are the following pair of facts. Many clients believe they need close to $5,000 a month to be comfortable in retirement and a fair amount doubt the solvency of Social Security.
At $4,930 a month, the figure cited in the Schroders survey, a retiree wouldn’t be too far below the 2022 U.S. median income – an ambitious retirement goal to be sure and one that requires careful planning and dedication to get in the ballpark.
As for the subject of Social Security solvency, it’s a potentially thorny one because it’s political. Like it or not, the U.S. government spends far too much money and that’s a threat to Social Security. Forty-four percent of those polled by Schroder’s are worried about just that.
“We have a crisis of confidence in the Social Security system and it’s costing American workers real money,” said Deb Boyden, Head of US Defined Contribution at Schroders. “Fear about the stability of Social Security has people walking away from money that could improve their quality of life in retirement. Many are not even waiting for their full benefit let alone the maximum, which means they will have to create more income on their own, making it even more important to save and invest earlier for retirement.”