BOSTON--(BUSINESS WIRE)--With the two-year anniversary of the start of the pandemic now in the rear-view mirror, and the prospect of an endemic approach finally in sight, many Americans are looking forward to turning a new page, although concerned they’ve lost financial ground when it comes to the condition of their retirement plans. In fact, according to Fidelity Investments’® 2022 State of Retirement Planning Study, while 8 in 10 (79%) Americans express confidence they’ll be able to retire when and how they want, 1 in 4 also say they are now less confident than they were before the events of the past two years. Furthermore, 71% of Americans say they are very concerned about the impact of inflation on retirement preparedness, and almost one-third (31%) don’t know how to make sure their retirement savings keep up.
“With so much uncertainty in the world, people understandably have concerns on a variety of fronts, and ‘Are we there yet?’ has to be on the minds of many,” said Rita Assaf, vice president of Retirement at Fidelity Investments. “The good news is, although the pandemic impacted us in many ways, from a financial perspective, our study shows having a plan in place is one solid way to help you weather any storm.”
Still, despite the general unrest in the world, people do seem to be growing somewhat more optimistic, especially among the young: 65% of respondents say 2022 is the year they put the pandemic behind them and focus on the future, a number that increases to 74% among the next generation of investors1. Almost 4 in 10 (38%) of next gen also say they are more confident than before the events of the past two years regarding their retirement prospects, which is more than twice the number of Gen Xers (17%). For those who report the pandemic has negatively impacted their retirement plans, 29% of next gen estimate it will take a year or less to recover—in contrast, only 18% of Gen Xers say the same.
Retirement Decisions: The Good, the Not-So-Good and the Downright Ugly
One thing that’s changed these past two years involves the evolving needs of retirement savers. People have learned important financial lessons during the isolation, and the focus of each generation has shifted over time. Next gen savers have the advantage of time on their side but need to ensure they are making smart retirement decisions. Meanwhile, older Millennials (aged 36-41) have moved into their peak earnings years, while the oldest of Gen Xers are now five years from retirement and most Boomers are making the transition into living in retirement.
How are people handling these priority shifts? First, the good news: the majority of Americans have put into place good financial behaviors and set practical post-pandemic priorities:
One increasing sign of the times is the emerging use of robo advisors to help with retirement decisions, particularly among younger investors. In fact, 61% of the next generation of investors say they like using a robo advisor to help navigate their next steps, compared to 35% of the general population.
In addition to these positive changes, though, there are several actions -- or inactions -- that have taken place, often by necessity, during the pandemic and the resulting Great Resignation, that may necessitate some course correction. Let’s break it down by generation.
Next Gen: Some Stood Still with Planning, or Worse, Cashed Out, During the Great Resignation
How to deal with a crisis? Hitting the pause button is one option, and 55% of next gen say they put their retirement planning on hold during the pandemic, which is much higher than the general population (41%). Almost half (45%) of next gen don’t see a point in saving for retirement until things return to normal. And yet, waiting until the backdrop feels "safe" to make an investment in stocks has historically not been a good method of achieving future returns. Looking back at the performance of the S&P 500, an investor who missed out on just 30 of the best-performing days for the market since 1980 would have reduced their portfolio’s value by about 84%, compared to one remained fully invested2. Perhaps as a result, 39% of next gen now plan to retire later than expected.
One of the more profound impacts of the pandemic is the rise of the Great Resignation, and 80% of next gen say they are now more determined than ever to focus on their passions and dreams. Whether it’s leaving for a higher paying job, moving into a job more aligned with one’s values or exiting a toxic work environment, much of this change is empowering, although some young investors may require some future retirement guidance, as 1 out of 5 who quit opted to cash out of their 401(k), a move that could potentially have a longer-term negative impact.
“The fact that so many people who left their jobs as a result of the Great Resignation also cashed out of their 401(k)s may be cause for concern,” said Assaf. “Taking money out of your retirement accounts completely should be avoided unless the immediate need is critical and there are no other options, not only because of the tax implications, but also due to the impact on your retirement nest egg. If possible, one of the most important things you can do to prepare yourself for retirement is to start saving as early as possible, since you have time and the power of compound interest potentially on your side.”
Inaction and Cashing Out Too Quickly Are Top Problems Among Older Generations, Too
Unfortunately, inertia is not a problem reserved only for the young. When it comes to Gen X, the view of the state of their retirement savings is by far the gloomiest: among those who say their retirement plans have been negatively impacted by the pandemic, more than one quarter (27%) estimate being 4-5 years away from getting back on track or admit they are completely off track. This is a concerning prospect, given the oldest Gen Xers are now 5 years away from reaching the qualifying retirement age of 62. Many in Gen X have fallen behind in other areas, too:
Drawing down too quickly on a retirement nest egg that was decades in the making may also be an area of concern. When asked, 1 in 5 of all respondents thought a financial professional would recommend a withdrawal rate of 10-15% of retirement savings every year. In fact, withdrawing that amount would be far above Fidelity’s suggestion to withdraw no more than 4 to 5 percent from savings yearly—and could lead to depleting one’s retirement savings far too quickly. Of immediate concern, this view was held by 20% of Gen Xers and 15% of Boomers.
Plan On It: Gaining Clarity on What’s Possible and How to Get There
For those who put their retirement plans on pause during the pandemic, now may be the perfect time to move back into action. Here’s one powerful reason: it can make you feel better. In fact, when looking at major financial milestones, planning for retirement is the only area where people tend to be more motivated by the planning rather than excited about the day it happens:
The power of planning can also have a profound impact on one’s peace of mind, as well as on one’s confidence about retirement—both short and long-term. Those with a plan in place:
- Feel more confident about being able to retire when and how they want (91% with a plan vs. 67% without), are more likely to know how much money they’ll need to retire (84% with a plan vs. 56% without a plan) and when they want to retire (84% with a plan vs. 59% without)
- Are more likely to say they know what to do to keep up with inflation (77% with a plan vs. 57% without) and are less likely to say they plan to retire later due to the pandemic (16% with a plan vs. 29% without)
For those who want to start planning but feel overwhelmed, it’s important to keep in mind you don’t have to do it all at once. In fact, keeping things bite size can be more effective when it comes to goal setting: by an almost 2:1 margin (63% vs. 37%), people find making small improvements and milestones more motivating than imagining a big payoff.
In addition, passion creates purpose, which is to say, you’re more likely to plan if there’s a desire around what you're planning for. Among the next generation, 79% have an exact or good idea what they want to do when they retire; the same number have an exact or good idea which retirement savings plans, investments and savings schedule will best help achieve their goals. These are higher levels than older Millennials or Gen Xers and definite steps in the right direction.
Finally, key considerations for having a retirement “plan” differ by generation. For those 30 years away, having a plan simply means determining how much you should be saving on a regular basis and what accounts those savings should be put into based on tax and investing considerations. As people get closer to retirement, they need to think and plan for more complex topics.
Looking to Get Started?
To determine where you are on the retirement planning journey, Fidelity can help you understand how much you may have saved versus how much you may need, and suggested next steps to support the lifestyle you desire. By answering just six questions, the Fidelity Retirement Score can help anyone get an estimate of where they stand for retirement, as well as next steps to consider. For those in or nearing retirement, the Retirement Income Calculator is an easy way to assess your estimated monthly retirement cash flow. In addition, Fidelity also offers a variety of other resources:
- Fidelity can help create a free retirement plan no matter where you are in the planning journey. And you can adjust the plan as your priorities evolve. It all starts with setting a goal.
- Educational Fidelity Viewpoints®, including “Boost your odds of a successful retirement,” as well as information on maximizing your retirement savings, as well as seminars and online learning modules around key retirement issues and how to prepare for them.
- Visit the Life Events hub for support with more than two dozen life events including anything from a job change, or marriage to caregiving.
- Want a fresh take on life and money? Fidelity’s new Modern Life newsletter makes you better informed through exclusive insights every week about how current events affect your wallet and little tricks that can help you save more and spend and invest better.
- Looking for a way to see how your personality impacts your investment choices? Optimize your financial decisions with Fidelity’s Money Personality Quiz.
- For smart automation that makes investing simple and easy, check out Fidelity Go.
- At Fidelity you can take advantage of a 1:1 relationship to create a plan for your full financial picture that can help you grow and protect your wealth. Start a conversation.
- In addition, Fidelity representatives are available at no cost to answer questions 24/7 at 1-800-FIDELITY, or online at Fidelity.com.
About the Fidelity Investments 2022 State of Retirement Planning Study
This study presents the findings of a national online survey, consisting of 2,622 adult financial decision makers. Respondents had at least one investment account. The generations are defined as: Baby Boomers (born 1946-64), Gen X (born 1965-80), Millennials (born 1981-96) and Gen Z (born 1997-2004). Next generation is defined as between the ages of 18-35. Interviewing was conducted February 5 - February 17, 2022 by Ipsos America, Inc., which is not affiliated with Fidelity Investments. The results may not be representative of all adults meeting the same criteria as those surveyed. For a detailed look at the study, go here.
About Fidelity Investments
Fidelity’s mission is to inspire better futures and deliver better outcomes for the customers and businesses we serve. With assets under administration of $11.1 trillion, including discretionary assets of $4.2 trillion as of February 28, 2022, we focus on meeting the unique needs of a diverse set of customers. Privately held for over 75 years, Fidelity employs more than 57,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about-fidelity/our-company.
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1 The generations are defined as: Baby Boomers (born 1946-64), Gen X (born 1965-80), Millennials (born 1981-96) and Gen Z (born 1996-2012). Next generation and young investors are defined as respondents ages 18-35.
2 SOURCE: Bloomberg Financial LP based on Fidelity Investments (AART) calculations as of Dec 31,2020.