Data & Research July 19, 2024

Facing Delayed Retirement, Many Americans Wish They Had Started Saving Sooner

According to new reports from Voya and F&G Annuities & Life, most Americans wish they had started saving for retirement before they turned 25.

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Facing Delayed Retirement, Many Americans Wish They Had Started Saving Sooner

Two separate research reports released by retirement solutions providers this week share a theme in retirement for Americans: Many people wish they had started saving sooner, and a majority of those in or near retirement (68%) say they will need to delay retirement because they do not have enough saved.

One report, by Voya Financial Inc., focused on how Americans saved and how they wish they had saved in the past. Another, by annuity provider F&G Annuities Life & Inc., asked about people’s retirement plans and trajectories.

Do-Over

More than half of Americans began saving for retirement between the ages of 18 and 34, with an average starting age of 28, but 64% of Americans wish they had started saving before turning 25, according to Voya’s survey released on Thursday.

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On average, Americans reported wishing they had started saving for retirement at age 23, five years earlier than the average starting age. The survey also highlighted generational differences in retirement savings behavior.

Generation Z, on average, began saving at about 20 years of age, by far the youngest of the generations considered. Millennials started at an average age of 24 but wish they had begun at 23. By contrast, Generation X and Baby Boomers started saving later, at 30 and 32 years old, respectively, though members of those generations wish they had started at 23 and 24, respectively.

The findings underscore a common sentiment across all generations: regret that they did not start saving for retirement sooner, Voya found. Many are attempting to make up for lost time, according to Voya’s retirement plan participant data, which show that in the first quarter of 2024, the majority of those who changed their savings rate increased it. This includes 78% of Gen Z, 75% of Millennials, 75% of Gen X and 78% of Baby Boomers.

“Deciding to save early and often in an employer-sponsored 401(k) or other retirement account is within the control of every employee who has access—and this can be an important factor in creating an effective plan that leads to financial security in the future,” Kerry Sette, vice president, consumer insights and research at Voya, said in a statement. “As many employees face competing financial priorities, it’s important to remember that saving in a tax-advantaged retirement account can allow earnings to compound over time, which could be increasingly powerful for employees with a longer investment time horizon.”

Do More

In a separate survey commissioned by F&G, more than half of pre-retirees older than 50 and retirees themselves are considering delaying or coming out of retirement. Despite the S&P 500 being up more than 20% over the past year and inflation moderating since 2023, anxiety persists: 68% are considering delaying retirement, up from 64% last year.

Gen X respondents appear particularly concerned, F&G reported, with 71% considering or having already delayed their retirement plans, an increase from 65% last year. Inflation is a major factor influencing these decisions, cited by 49% of pre-retirees older than 50 and 44% of retirees considering rejoining the workforce.

Gen X respondents cited worries about not having enough money for retirement (49%), inflation (47%), wanting more financial options and a larger safety net (42%) and worries about a recession or stock market downturn (31%).

“This remains a challenging macroeconomic environment to navigate for those close to or in retirement,” said Chris Blunt, CEO of F&G. “As our survey shows, Americans are still reconsidering what retirement means to them, and that may look different from previous generations. We believe taking a proactive approach in financial planning can help mitigate some of the economic risks, allowing people to focus on their own personalized roadmap of how and when to retire.”

Voya’s survey was conducted on May 15 and 16 among 1,005 U.S. adults aged 18 and older.  F&G’s survey was fielded from May 1 through 16 among 2,048 U.S. adults. Respondents were Americans aged 50 and older who were financial decision-makers with at least $100,000 in financial products and savings.

Compliance July 18, 2024

IRS Finalizes 10-Year Rule

Annual required minimum distributions will be required for inherited retirement assets, come 2025, with some needing to be fully withdrawn within 10 years.

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The IRS will publish final rules Friday clarifying how a new 10-year rule regarding the withdrawal and eligibility requirements for inherited retirement assets will be implemented in 2025. The regulator posted the rules Thursday in “unpublished” format.

The Setting Every Community Up for Retirement Enhancement Act of 2019 required that certain beneficiaries of a deceased individual retirement account owner or plan participant must draw down their assets within 10 years of receiving those assets—as opposed to their “applicable” life expectancy.

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The IRS had previously indicated it would mandate that required minimum distributions be taken for each of those 10 years starting in 2022 if the original participant had already begun taking RMDs, but it postponed that interpretation through 2024 to give more time for assessment and implementation.

“The final regulations reflect changes made by the SECURE Act and the SECURE 2.0 Act impacting retirement plan participants, IRA owners and their beneficiaries,” the IRS wrote in a notice Thursday. “While certain changes were made in response to comments received on the proposed regulations issued in 2022, the final regulations generally follow those proposed regulations.”

The regulation distinguishes between instances in which the original participant began taking RMDs before they died and instances when they died before they started taking RMDs. It also differentiates between eligible designated beneficiaries and designated beneficiaries.

Eligible Beneficiaries

Eligible beneficiaries are a participant’s spouse, someone disabled or chronically ill or another beneficiary “not more than 10 years younger,” such as a younger sibling. Elizabeth Thomas Dold, a principal at Groom Law Group, explains that the 10-year rule is not mandatory for eligible beneficiaries.

If the original participant had not already begun taking RMDs, then an eligible beneficiary can either choose to take RMDs consistent with their life expectancy or elect the 10-year rule. If the participant died after taking RMDs, then the beneficiary can take RMDs consistent with the longer of their life expectancy or that of the participant. The latter will often result in no difference when the beneficiary is younger than the participant, Dold says.

A partial exception from the 10-year rule is made for heirs younger than 21: Their 10-year clock does not start until they turn 21. In cases in which a participant has left assets to multiple minor children, “a full distribution is not required until ten years after the youngest of the employee’s children who are designated beneficiaries attains the age of [21].”

At age 21, the beneficiary will have to take RMDs every year consistent with their life expectancy, which will tend to yield smaller amounts, and must then clear out the account by the end of 10 years, Dold explains.

Ineligible Beneficiaries

The 10-year rule is mandatory for ineligible beneficiaries, often adult children of the participant, according to Dold.

When the participant has begun taking RMDs, the beneficiary must take RMDs “at least as rapidly” as the participant had been. In the event there are assets remaining at the end of 10 years, the remaining balance will be forced out.

If the initial participant had not taken an RMD, then the ineligible beneficiary does not need to take RMDs and can choose to simply withdraw the entire balance at the end of 10 years.

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