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Amid high interest rates and persistent inflation, it’s understandable that clients have an increasing array of retirement-related concerns.
Advisors are aware of that trend and while awareness is important, there are surprises that must be acknowledged. In theory, the clients apt to be most concerned about retirement readiness are those lacking access to employ-sponsored plans such as 401(k)s. These days, that could represent a significant portion of an advisors’ client base when accounting for business owner, freelancers and gig workers.
However, employer-sponsored plans, particularly those that are not of defined benefit pension variety, aren’t foolproof when it comes to allaying workers’ retirement worries. In fact, data indicate that plenty of workers with access to 401(k)s and the like are worried about retirement. Furthering the need for those employees to connect with advisors is the fact that many believe they’ll need well in excess of $1 million to have a comfortable retirement.
401(k)s Help, But More Assistance Needed
The recently published Schroders 2024 U.S. Retirement Survey indicates that Americans with access to employer-sponsored retirement plans believe they’ll need $1.2 million to have sound retirements. That’s a sizable number and that might be hard to reach for many workers.
“46% expect to have less than $500,000 in savings at retirement – including 23% who say they will have less than $250,000. Just 29% believe they will reach the $1-million mark before retiring. The average age at which plan participants expect to retire is 63,” according to the survey.
Further reading the tea leaves from the Schroders survey, it’s obvious participants in 401(k)s and related plans need help from advisors and they need it right away. The poll indicates those queried have allocations of just 29% to stocks and a staggering 28% to cash. The former is too low and the latter is dangerously high, particularly when equities are rallying.
“More than one-quarter of plan participants (28%) say they have no idea how their retirement assets are allocated. Among those that do, allocations across all retirement investments (including workplace plans, IRAs, or other retirement accounts) suggest they are investing emotionally,” adds Schroders.
As Schroders notes, there’s an emotional component to those big cash allocations. Put simply, plan participants are afraid of losing retirement money – so much so that they’re missing out on a bull market for stocks.
Another Emotional Component
There are more reasons for workers with employer-sponsored retirement plans to call on their advisors. Beyond the aforementioned large cash allocations, many of these employees are worried about protecting and nearly all of those surveyed by Schroders say they either worry too much about money or lose sleep over financial issues.
“Additionally, 88% are concerned with how the 2024 US presidential election will impact their retirement savings. However, 32% say they will not make any changes to their retirement investments leading up to the election, 32% are unsure if they will make changes, and 28% plan to make their portfolio more conservative. Just 9% of plan participants expect to get more aggressive with their retirement investments leading up to November,” concludes Schroders.
Bottom line: Clients with 401(k)s need advisors and advisors should make themselves available on that front.