60% Americans Worry They'll Outlive Their Retirement Fund—Here's 3 Things You Should Do Now To Avoid That

According to the 2024 BlackRock Read on Retirement report, sixty per cent of Americans across all generations worry they'll outlive their retirement savings.

Retirement is a profoundly personal journey, but many of the challenges workers encounter are shared experiences. The perspective on retirement can vary significantly between those just starting their careers and those nearing their end. Individual experiences and limited access to resources, tools, and guidance can significantly complicate retirement planning. Yet, there is a belief that this complexity is unnecessary, and a commitment to redefining retirement is essential.

Insights from the BlackRock Survey

The survey presents findings from a research study by Escalent, Inc., an independent research firm. The study examined a group of large defined contribution plan sponsors, workplace savers, independent savers, and retirees in the United States.

Survey Details

Data was collected through an online survey completed by all respondents between January 29 and March 5, 2024. The 453 plan sponsors surveyed managed at least $300 million in assets. Of these, 37 per cent held positions in benefits or HR, while the remaining participants worked in finance, investment, or business management within their organisations.

The study included 1,308 full-time workplace savers participating in their employer's 401(k) or 403(b) plan with at least $5,000 in current account assets. The sample consisted of 53% males and 47% females, with age demographics of 24% Gen Z, 30% Millennials, 33% Gen X, and 13% Boomers.

The sample also included 1,308 full-time employed independent savers with at least $5,000 in retirement savings and no access to a workplace retirement plan. Of these, 52% used an IRA, and 36% saved through a full-service taxable brokerage account.

The 301 retirees in the study had been retired for at least ten years. Many had previously participated in a 401(k) or 403(b) plan, with some continuing their participation post-retirement. Additionally, 56% had access to a defined benefit or pension plan through a former employer.

Disparity Between Savers and Employers

Beneath the surface, a disparity exists. While market rallies boost workplace savers' confidence in their retirement preparedness, employers maintain a more cautious outlook. Despite renewed optimism among savers, plan sponsors highlight underlying concerns that warrant further investigation.

1. Workplace Savers: Last year, 56 per cent of workplace savers believed they or their participants were on track to retire with their desired lifestyle. This figure has increased to 68 per cent in the current year.

2. Plan Sponsors: Similarly, plan sponsors' optimism rose. In 2023, 58 per cent believed they or their participants were on track for a desired retirement lifestyle, compared to 64 per cent in 2024.

Generation X: The Paradox of Preparedness and Anxiety

Gen X, on the brink of retirement, faces a paradoxical situation. Despite being the most consistent savers among all generations—with 80 per cent reporting steady contributions—they are also the least confident in their retirement readiness.

Only 60 per cent of Gen Xers feel confident about being on track for retirement—the lowest percentage of any generation. A significant majority, 63%, express concern about outliving their retirement savings. Furthermore, 74 per cent believe they will face greater financial uncertainty than previous generations.

The Looming Shadow of Longevity

Across all generations, a pervasive fear of outliving retirement savings is evident. Sixty per cent of respondents expressed this concern, with 80 per cent acknowledging its negative impact on their mental well-being. Overwhelmingly, 99 per cent indicated that a guaranteed income stream in retirement would be beneficial.

Plan sponsors identified "adding investment options with secure income features" as the top strategy to enhance future retirement outcomes.

Additionally, they believe a retirement income planning tool will be crucial in attracting and retaining talent in the current competitive job market. Financial advisors emphasise avoiding these three critical mistakes to ensure your retirement savings endure.

Common Retirement Mistakes

1. Underestimating Longevity

Underestimating longevity is a common mistake. With increasing life expectancy, retirees should plan for a retirement spanning 20 to 30 years or more. It is essential to account for this extended lifespan to avoid premature depletion of savings.

A recent report underscored the plight of a U.S. senior who found herself penniless in retirement despite a lifetime of labour. Financial experts often recommend employing the 25x rule as a retirement savings benchmark to prevent such crises.

Key Factors:

• Increased Lifespan: Longer life expectancy necessitates a more extended financial plan.
• Rising Healthcare Costs: Medical expenses increase with age, requiring a more significant financial cushion.
• Inflation: The erosion of purchasing power over time impacts the value of savings.

2. Ignoring Inflation

Ignoring inflation can severely impact retirement savings. Over time, the erosion of purchasing power necessitates inflation-adjusted investment strategies to preserve the value of retirement funds.

Key Factors:

• Eroding Purchasing Power: Inflation diminishes the value of money over time, impacting the ability to maintain a consistent lifestyle in retirement.
• Need for Growth: Investments must grow to keep pace with inflation and preserve purchasing power.
• Strategic Investing: Diversified portfolios, including stocks with historical inflation-beating returns, are recommended.

3. Drawing Down Savings Too Quickly

Many retirees deplete their savings prematurely by withdrawing excessive funds early in retirement. This can lead to financial hardship later, especially when faced with unexpected expenses. Financial experts recommend a sustainable withdrawal rate, often around 4% annually, to ensure long-term financial security.

A stark reminder of this issue comes from a Pew Research Center report indicating that one in five Americans over 65 return to work due to dwindling savings, equating to approximately 11 million individuals.

Key Factors:

• Sustainable Withdrawal Rate: Adhering to a conservative withdrawal rate, typically around 4% annually, is crucial.
• Unexpected Expenses: Unforeseen costs can significantly impact retirement finances if savings are depleted too rapidly.
• Forced Return to Work: Many retirees are compelled to re-enter the workforce due to insufficient savings.

Understanding these common retirement pitfalls enables you to make informed decisions to secure your financial future. Every individual's situation is unique, so consulting a financial advisor is essential for personalised guidance.