Data and Research May 31, 2022

The Changing Path of Retirement

The path to retirement no longer resembles that of older generations; a new study examines what has changed.

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A new study by Edward Jones and Age Wave, “Longevity and the New Journey of Retirement,” examines what it means to experience well-being and thrive in retirement—a journey that is not one-size-fits-all, and instead has many possible paths and variations.

The study of more than 11,000 U.S. adults found that despite Americans’ worries about health care and long-term care costs in retirement, they still desire to live longer, and nearly seven in 10 Americans (69%) want to live to age 100.

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More than the fact of longevity is changing retirement, the study says. People’s growing awareness of their potential longer life is changing their expectations, attitudes and preparations for this extended life. In the 20th century, life expectancy in the U.S. rose from 47 years to 79, and despite a setback to 77 years caused by the COVID-19 pandemic, longevity may continue to grow for decades to come.

According to the study, Americans who want to live to 100 said they hope to live longer because they want to spend more years with family and friends (35%), they are enjoying life and want to continue doing so (23%), they are curious about the future (19%) and there is so much more they want to do (18%). Only 6% said they wanted to live longer because they are afraid of dying. Additionally, retirees now see the ideal length of retirement as 29 years.

On the other hand, there are some who said they would not want the extra longevity if they were suffering with terrible health (32%), became a burden on their families (29%), had serious cognitive loss like that of Alzheimer’s disease (20%) or no longer had purpose in life (14%), the study says. Only 5% said they wouldn’t want the longevity if they were impoverished.

The definition of retirement has vastly changed from that of previous generations. Pre-retirees and retirees view their parents’ version of retirement as a time for “rest and relaxation,” the study says. However, when asked about their own retirement today, only 27% see today’s retirement as “a time for rest and relaxation,” while 55% define it as “a new chapter in life.”

The study also found there are blurred lines around what people think marks the beginning of retirement. The top milestones that pre-retirees and retirees view as the “start” of this chapter include stopping full-time work (34%), receiving Social Security and/or a pension (22%), leaving one’s job/career (17%) and achieving financial independence (17%). Only 10% said the start of retirement meant reaching a certain age.

This changing definition is reflected in pre-retirees’ and retirees’ retirement plans, as a majority (59%) want to work in some way during their retirement, with 22% looking to work part time, 19% hoping to cycle between work and leisure and 18% wishing to work full time, the study says.

When asked what they’d like more of in life moving forward, more than two-thirds of retirees said time with family, in particular with their grandchildren; among women retirees, the number was even higher. Forty-three percent of retirees said they look forward to more rest and relaxation, and a third said they definitely want more fun.

The study identifies four distinct stages to describe the overall journey as people enter retirement: anticipation (0 to 10 years before retirement), liberation/disorientation (0 to 2 years after retirement), reinvention (3 to 14 after retirement) and reflection/resolution (15+ years after retirement). Each stage presents unique expectations, priorities, challenges, hopes and planning needs.

In the heart of retirement, seen during the reinvention stage, the study further identifies four distinct journey paths characterized by people’s attitudes and ambitions, retirement preparations and level of enjoyment of life in retirement. Researchers uncovered how decisions and strategies for living throughout the early and middle years of life can impact the retirement years—both negatively and positively.

“Purposeful Pathfinders” enjoy the greatest well-being in retirement and are happy, engaged, productive and contributory, the study says. They are best prepared for life in retirement and 78% said they are in great shape financially. They began saving for retirement earlier than all the other groups, on average at age 34.

“Relaxed Traditionalists” pursue a more traditional retirement of rest and relaxation. This group had a smooth transition and are well-prepared, the study says. Most (81%) retired when they chose to, and while they are the most open to relocating, including to adult-living communities, they have fewer aspirations for personal growth or giving back than Purposeful Pathfinders.

“Challenged yet Hopefuls” lead active lives and have focused on self-improvement, but their lives in retirement are constrained and uncertain due to insufficient financial preparation, the study says. Half said they often worry about outliving their money and this taints nearly all their future hopes. They began saving for retirement later than all the other groups, at age 45, and over half of those in the group with retirement accounts (54%) have made early withdrawals along the way.

“Regretful Strugglers” represent the largest of the four groups (31%). These are the least prepared for retirement. They are the most unhappy and, overall, feel the least positive about life. The study found that 43% said they are financially worse off in retirement than during their working years. The majority (59%) said they have many regrets in life, and 42% feel that life has dealt them a bad hand.

“We are witnessing the birth of a new retirement with unique stages and journey paths for everyone,” says Ken Dychtwald, founder and CEO of Age Wave. “Successful retirees have enjoyed a mostly positive, satisfying life and are looking forward to the years ahead. Their emotional intelligence and hard-earned resilience can provide invaluable guidance as tomorrow’s retirees contemplate how to best plan to fulfill their hopes and dreams for retirement.”

While everyone’s experience of retirement is different, the study says one thing is clear from the research: Retirees who report better quality of life took more steps decades in advance to prepare and plan across all the four pillars of finances, purpose, family and health. From saving early and consistently and developing healthy habits to communicating with close family and discovering passions and interests, there are many steps pre-retirees and those early in retirement can take to make the most of their retirement.

The value of financial foresight cannot be underestimated, as the traditional “three-legged stool” for funding retirement—pensions, Social Security and personal savings—has become even more wobbly, and unexpected expenses can arise in retirement, the study says. Age Wave suggests working Americans double down on the third leg of the stool, saving.

According to the study, retirees said they started saving for retirement at age 38 on average, but in retrospect, they wished they had started saving nearly a decade earlier, at age 29. In addition to saving, other key pre-retirement actions include tending to ongoing health and preventive care, discussing retirement plans and goals with family and friends and beginning or expanding volunteering activity.

The study also says working with a financial adviser can be instrumental in interpreting current market conditions and developing a holistic financial plan to better prepare for a 100-year lifespan—and the expenses that come with it.

“Understanding the way people today view retirement, and what changes retirees wish they could have made, improves our ability to serve them in a human-centered way and help them each achieve what’s most important to them and their families,” says Ken Cella, Edward Jones’ branch development principal.

Benefits May 31, 2022

How to Communicate With Your Plan Participants Right Now

Economic turmoil is an opportunity to connect plan participants to education about markets.

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Art by Jeffrey Kam

With ongoing market volatility and increasing chatter about a potential bear market, some retirement savers may be feeling more anxious about their investments than they have in the recent past.

The average retirement account balances declined 6% from the fourth quarter of 2021 to the first quarter of 2022, according to Fidelity. So far, Fidelity finds, most participants have chosen to stay the course, with just 5.6% making changes to their asset allocation in the last quarter.

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For plan sponsors, the recent economic turmoil is an opportunity to connect with plan participants to educate them on the current markets and the best moves for their financial security, says Stuart Robinson, CEO of ShareBuilder Advisors.

“The overarching theme of successfully planning retirement is staying the course,” says Christopher Dall, vice president, senior product leader at PNC Institutional Asset Management. “Retirement investing is a long-term goal, and fluctuations in the market are going to occur throughout the years, but what matters most is how much the account is worth at retirement, not how much it changes this week.”

Still, Dall concedes that such advice is easier to give than to follow when markets are gyrating wildly.

“Even a professional investor with an understanding of market volatility is lying if they say they’re not stressed when markets are down,” he says. “It’s hard for employees, especially those who are close to retirement and who might see market volatility as the reason they can’t retire this year.”

The extent to which recent declines—or potential greater losses going forward—concern individual participants depends on factors such as their risk tolerance, their other financial assets and the amount of time they have until retirement.

If there are advice call centers or other financial wellness options that can provide advice tailored to participants’ individual situations, plan sponsors may want to highlight them to all participants, along with general messaging about the importance of focusing on long-term goals. But they can also tailor their message to segments of the plan populations, based on age or other factors.

“Plan sponsors and providers shouldn’t wait for market turmoil to hit,” says Raymond Bellucci, senior managing director and regional general manager with TIAA. “We should be communicating regularly with plan participants and focusing on both their short-term and long-term plans.”

Experts say that using in-person and virtual one-on-one consultations and communicating across different media, including text messaging and email, can reach the broadest swath of participants. Messaging should use plain language that even those without a financial background can easily understand. Here’s a look at how communications might vary, depending on a participant’s age and time until retirement.

For the Younger Employees (15 Years or More From Retirement)

Employees with a decade or more to go until retirement have the least to worry about when it comes to the long-term impact of stock market volatility. But, given recent historic market performance, they may have never experienced a down market, aside from the brief COVID-19 downturn in spring 2020.

Messaging to this group should frame volatility as a normal part of the market—and one necessary to deliver long-term returns. Share data looking at previous downturns and the subsequent market recoveries, and explain how those who pulled out of the market after selloff missed the upside. For most participants, keeping their money in the market and continuing to invest over time is the best way to secure their financial future.

“Millennials are very receptive to data,” says Chad Olson, a financial adviser with SageView Advisory Group. “I also try to impress upon them that they should be looking at this as a positive, rather than a negative. This is a chance to buy equities that are 20% discounted from January. “

For Middle-Aged Workers (10 to 15 Years From Retirement)

These workers also likely have enough time before retirement to recover from short-term dips in the market. The goal for this group may be on maxing out their contributions, including via catch-up provisions if they’re behind on their retirement savings.

“For this group, I’d be focusing on replacement income and dialing in on that number and using calculators available to see whether they’re on track to have the retirement income to do the things that they want to do in retirement,” Dall says. “That becomes more relevant for mid-career employees.”

For Near-Retirees (5 Years From Retirement)

Those with a shorter time horizon until they either stop contributing to or need to start drawing down their nest egg may have heightened sensitivity to negative returns. If the plan offers lifetime income investments, this might be an opportunity to highlight those options and the protection that they can offer, Bellucci says.

For those with participants in a target-date fund or some other qualified default alternative, communications might focus on how these funds take long-term market volatility into account and offer some protection, although evolving glide paths have many target-date funds more heavily tilted toward equities than they were a decade ago.

This group also benefits from one-on-one conversations tailored to their personal situations, says Olson, who often consults with plan participants about their financial picture.

“If you have three 60-year-olds, they’re going to all have different situations,” Olson says. “A lot of times they just want reassurance, even just a five-minute conversation, that they’re OK.”

For Recent Retirees

A full seven in 10 employers are concerned about the impact of market volatility on their retirees, according to a recent MetLife study. For these participants, inflation may also be a significant concern, as the erosion of their purchasing power can create an obstacle to their retirement security.

Those in the decumulation phase may face more complicated decisions than those still saving for retirement, so this may be an opportunity for plans that offer education or advice to urge retirees to take advantage of those benefits. For retirees who are not in a managed portfolio, plan sponsors might direct them to tools that help them understand their asset allocation and create a plan that will offer them the most downside protection.

“If you’re nervous and freaking out about market volatility, it might be time to look at your asset allocation and investments and consider whether you’re too risky,” Robinson says. “It might be time to see whether there’s another portfolio that’s a better fit for you and will let you sleep at night.”

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