Retirement Now a “Transition” For Many Americans, According to Smart

One in five Americans plan to work into their retirement, according to a study by the retirement technology provider.

Affording health care and daily living costs are top concerns for Americans heading into retirement, according to a recent study released by Smart in the U.S., a retirement technology provider and subsidiary of Smart Pension Ltd.

Because of factors like inflation and the volatility of economic markets, Smart’s “Future of Global Retirement” report revealed that that around one in five Americans plan to work into their retirement, with 18% saying that income from continued employment will help fund their retirement. Smart concluded that retirement is “increasingly becoming a transition rather than a one-off event.”

“It’s a bit eye-opening that there’s a number of people that are worried or feeling like they need to continue to work in retirement just to subsist,” says Jodan Ledford, Smart’s U.S. CEO. “I think one of the issues is that in the 401(k) space in the U.S., there’s a lot of great provisions that people have created within those plans, but historically, those plans were never really designed in the beginning to be a one-stop retirement savings vehicle.”

Ledford explains that when defined benefit pension plans were more dominant, people had more certainty about what their income would be in retirement. When comparing the retirement landscape in the U.S. with that of the U.K., Ledford says the U.K. has a younger defined contribution market, so most people going into retirement are still relying on a defined benefit pension plan.  

As a result, Ledford says people tend to be more confident about their retirement readiness in the U.K. because they know “exactly what the picture looks like.” 

Concerns About Health Care, Cost of Living 

American respondents also expressed much more concern about health care costs, as opposed to U.K. and Australian respondents, who can rely on their countries’ national health care systems. Smart’s report revealed that 58% of Americans surveyed said being able to afford health care costs in retirement is their top concern. 

This worry is growing, as Smart found this statistic is up from 45% in 2021. For those closer to retirement age, between 45 and 54 years old, 66% said affording health care was a top concern. 

A majority of South African respondents also said affording health care costs is a top concern, and across all regions, women tended to be more concerned about health care and living costs than men. Smart found that women’s understanding of their retirement finance options was slightly lower than men’s, reflecting the significant gender retirement gap that persists across the globe.  

In the U.S., the ability to afford day-to-day living costs in retirement was the second most common concern among respondents at 57%, jumping 16 percentage points from 2021, according to Smart’s report. 

In addition, two in five people in the 45 to 54 age group expect their average monthly spending to increase in retirement, according to the report, which cites rising inflation as a contributing factor. Meanwhile, those closer to the age of retirement (55+) are less likely to expect their spending to increase. Smart’s report says this may be because this age group has a better understanding of what spending in retirement will look like.  

Gaps in Retirement Advice 

While the study found that most Americans understand their retirement options, it also found that the sources where Americans expect to get advice are not always the most useful. 

For instance, 51% of Americans said they expect to get advice from their retirement plan provider, but only 17% said they receive the most useful advice from their plan provider. Similarly, only 10% cite their employer as providing the most useful advice.  

“This presents an opportunity for service providers to step in with guidance and education,” the report stated. 

Ledford says there is also an opportunity for education and advice through improved technology.  

For someone who has worked at seven different companies and has six different 401(k) accounts, for example, Ledford says people are looking for a solution that would consolidate these accounts and allow them to track their finances in one place. But he says this technology is “not quite there yet.” 

“I think there’s probably some competitive dynamics where others probably don’t want that ease of access because it could lead to a lot of businesses charging money based on the amount of assets that they have in their system,” Ledford says. “So there’s a little bit of an inhibitor from a commercial perspective, but I think that’s where people are really trying to gain a lot more comfort.”

A Desire for Access and Control 

Access to an online account to check balances was the top priority for U.S. respondents when asked to consider the most important features of a retirement plan. The ability to change one’s retirement income amount was also a top priority among respondents.  

When managing retirement finances, American respondents said they want a balance of control and support. Only 6% of those aged 55 or older said they want to put the management of their retirement finances solely in the hands of a third party. The majority (59%) said they seek a blended approach: They want to manage their own money in retirement, but they also want assistance when doing so. 

Smart found that younger Americans were less likely to want to manage their finances completely on their own. 

On a global scale, Smart concluded there is a gap between what savers want from a retirement provider, and what is being provided. Many are expressing a desire for digital access to retirement savings, when in reality, most providers are still sending paper statements.  

“While other areas of life—like banking and shopping—are dealt with at the touch of a button, retirement services lag behind,” the report stated. “We can expect to see savers demand more of their providers in this space in the years to come.” 

Smart’s study was conducted in late 2022 and surveyed people, ages 18 and over across the U.S., Australia, South Africa and the U.K. There were roughly 2,000 people surveyed per region, totaling more than 8,000 respondents.