Despite the plethora of saving and financial wellness options created by the retirement industry, there is still a major disconnect between the importance Americans say they put on retirement planning and their sense of actual preparation, according to new research.
The nonprofit AARP said the gap between the importance people say they place on retirement planning and how prepared they feel is at least 30 percentage points for every age group. The biggest gaps showed up in the middle range of those surveyed, with people aged 60 to 69 leading with a 51% gap, followed by people aged 40 to 49 with a 49% gap. The smallest gap was for those furthest from retirement, at 32% for people aged 20 to 29.
“Although people recognize the importance of planning for retirement, for many the idea of retirement is overwhelming and/or terrifying,” the AARP report said. “These feelings may lead them to avoid planning altogether or to give up easily when they don’t know where to start, don’t know whether they’re on the right track, and/or don’t know how to stay the course.”
The research highlights the disconnect between what people say about retirement planning and how much they actually save and plan. Recent research provided to PLANADVISER by consultancy Hearts & Wallets found that more than half (53%) of Americans who rely on their workplace retirement plan as their primary financial resource do not sign up for more than the most basic self-service assistance. That’s despite other surveying showing that Americans feel stressed about their finances.
The AARP study found that on average 42% of all those surveyed say they do not feel prepared for retirement, while an average of 87% feel retirement planning is important.
The AARP also found that, in addition to not feeling prepared to manage their own post-work life, many retired people have neglected to plan for their emotional and health needs.
The majority of those in retirement (57%) said they gave emotional health the least amount of planning before retiring, which was followed by a lack of planning for fulfillment in life (46%). One-third (33%) of retired adults said they did not plan for their physical selves in retirement.
These retirement plan gaps provide an opportunity for individuals, employers, financial institutions and educational organizations to help people prepare better for a successful retirement, the AARP said.
The retirement options that plan advisers can bring to employers have been improving in recent years both in capability and scale, says Jim O’Shaughnessy, president of retirement and wealth management at HUB Midwest West. These options range from managed accounts to easily accessible financial wellness programs and in-plan guaranteed income options.
That said, plan sponsor committees have often been focused on more immediate needs than instituting potentially untested or new programs, O’Shaughnessy told PLANADVISER in a recent interview.
“In a lot of cases, our employer clients over the last 12 months have been still very focused on the pandemic, the tight labor market, the last couple quarters with the Federal Reserve raising rates, wage inflation, as well as inflation and overall compensation and benefits,” O’Shaughnessy says.
O’Shaughnessy noted that younger workers may be more open to utilizing financial wellness benefits and newer retirement investment options from their employer plans.
“Generations Y and Z have a different perspective and expectation on what employers provide versus Boomers and Generation X,” he says. “[Older generations expect that] anything on the financial services side you would do outside of the plan on your own. But you’re seeing with younger employees that a lot of them expect these services to be more mainstream and offered through the employer.”
While younger generations understand the importance of saving, most are still primarily focused on earning income to pay off debt and save for immediate needs and wants, according to the AARP findings. They also express a lack of information and resources when it comes to doing the “right thing” for retirement planning.
“All these feelings contribute to the belief that they will never be in a financial position to retire comfortably, and thus they continue to question not only its viability, but also its personal relevance,” the AARP report said.
Employers can help with programs including “easy and convenient” retirement saving plans, a flexible transition into retirement through part-time work and being a trustworthy source of information and advice, the report said. Financial institutions, for their part, are encouraged to engage consumers who do not see themselves reflected in educational and marketing materials, with diversity and inclusion being both a driver for working with savers, as well as growing a company’s market share, the AARP report said.
The AARP report was based on research conducted from August 2020 to May 2021 that combined AI-assisted ethnographic analysis, qualitative interviews and an online quantitative survey of more than 3,000 people. The study was funded by Collaborata and led by RTi Research with The Business of Aging, and Aha!