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Last year’s spike in inflation was akin to blunt force trauma to clients’ retirement expectations and goals. Advisors have likely had plenty of conversations this year on this issue and it’s certainly one reason why clients are admitting they need advisors.
Advisors know it and clients are learning that not only does inflation pinch retirement income, it forces clients that are nearing retirement and those actively planning for it to reassess their expectations. In other words, it’s not surprising that in 2023, investors believe they need more money to have a comfortable retirement than they did last year.
The 2023 Planning & Progress Study, an annual research study from Northwestern Mutual, confirms as much.
“Americans believe they will need $1.27 million to retire comfortably. That number continues to increase, up from $1.25 million reported last year,” according to the survey. “Meanwhile, the average amount that U.S. adults have saved for retirement modestly increased by 3% to $89,300 from $86,869 in 2022.”
Generational Considerations
Advisors should note that the $1.27 million figure referenced above is an average across six groups – people in their 20s through 70s. As a result, the figure ebbs and flows among those age groups.
For example, owing to the fact that many are already in retirement, clients in their 60s believe that $968,000 to retire comfortably. That number declines to $936,000 for those in their 70s. Proving that inflation was particularly burdensome for clients nearing retirement, the 50s cohort believe they need $1.56 million for a solid retirement, according to Northwestern Mutual.
That figure declines to $1.28 million for clients in their 40s, but indicating millennialls have big retirement dreams, clients in their 30s think they need $1.44 million for strong retirement standing. Beyond generational issues, advisors should pay particular attention to the retirement expectations of their most affluent clients.
“High-net-worth individuals – those with more than $1 million in investable assets – believe they’ll need $3 million to retire comfortably,” adds Northwestern Mutual.
Other Results of Inflation
Inflation and last year’s slumping equity and fixed income markets had another negative, predictable impact on retirement planning: Clients now believe they must work longer to catch up after the punishment their portfolios endured in 2022.
“These retirement readiness feelings impact how long people expect to work. Boomers+ plan to work the longest (71) while Gen Z expects to retire more than a decade earlier (60). Millennials and Gen Xers plan to work to age 63 and 65, respectively,” observed the study. “Overall, Americans on average plan to work until the age of 65, up from 64 last year and 62.6 in 2021.”
For advisors, there’s a silver lining. These tough times are highlighting the value of clients gaining discipline and working with financial professionals.
“Interestingly, the study found that people who identify as disciplined financial planners knock off two years on their retirement age (63). Informal / non-planners add two years (67),” concludes Northwestern Mutual.