Will most Americans run out of money in retirement? Wall Street executives sound the alarm, but many financial advisors say a crisis can be averted.
Larry Fink, Chair of BlackRock’s global asset management firm, which manages over $10 trillion for clients globally, put it starkly in a March letter to shareholders. He described the retirement crisis as one of the biggest economic challenges of the mid-21st century.
In the letter, Fink was succinct. “Today in America, the retirement message that the government and companies tell their workers is effectively: ‘You’re on your own.'”
The C-suite executive is not alone in fretting about retirement poverty. A recent Allianz survey shows a whopping 63% of survey respondents this year say they worry more about running out of money in old age than about death and dying. That is a ten percentage point increase in two years — up from 57% in Allianz’s 2022 edition of the survey.
It is a sobering outlook, yet it’s not too late to prepare for the future. How exactly should Americans get ahead of the retirement curve? Financial advisors offer their perspective with smart money moves to increase the odds of achieving a comfortable retirement.
Crisis Point
The dream of a long, secure retirement is becoming increasingly out of reach for many Americans.
“There is a growing retirement crisis in the United States,” says Daniel Masuda Lehrman, Wealth Manager at Masuda Lehrman Wealth. “Without potential Social Security benefit cuts in the future, many Americans will be unable to retire and maintain their lifestyle. When it comes to retirement success, there are only a few things we can do: Spend less, save, and invest more, delay retirement, or change investment allocation.”
Forecasting remains one of retirement’s leading challenges. Economic forces, world events, and sudden changes to personal circumstances can all upend even the most scrupulous savers’ plans. Some planners implement tech to inform speculations about retired life and mitigate risks.
“Financial planners like to coach our clients on retirement readiness by using a tool called the Monte Carlo simulation, which models market variability, longevity risk, withdrawal strategies, and other factors,” says Lehrman.
Yet, not all advisors agree with the crisis prognosis.
“I disagree with Fink when he mentions that retirees are on their own,” says Spiros Vassilakos, Private Wealth Advisor at Athenian Private Capital Group. “There are many good financial advisors available to help them plan whether they are a few years away from retirement or are in retirement.”
The decreased costs of hiring a financial advisor prompts more Americans to seek professional guidance as they plan for retirement.
“Most Americans do not have enough savings. That truly boils down to having the discipline to save and stop spending on unnecessary luxuries like cars, travel, and entertainment,” Vassilakos adds. “We help our clients through this by putting together a budget and a cash flow analysis to better help them understand that in order to reach their retirement goals, these are among the many steps we need to take to get close to their goals.”
Despite recent economic pressures, many Americans still aim big regarding post-work ideals. Interestingly, this rise in lofty post-work goals spikes as retirement affordability and accessibility shrink.
Americans take on more during their post-work life. Reports from Fidelity show that most people want to travel, relocate, and undertake entrepreneurship. Most respondents said they look forward to pursuing work for pleasure after stopping their formal careers.
Yet without a solid financial grounding, few will have the stomach to take risks for such an adventurous retired life.
A Sense of Balance
Economic pressures have normalized extreme measures for retirement. The so-called FIRE (Financial Independence Retire Early) movement, where adherents deny themselves the simple pleasures, scrimping and saving to quit work sooner, speaks to the desperation of younger generations to achieve retirement at any cost.
“Pre-retirees need to focus on what is within their control today and prepare for the unexpected to occur in the future,” says Michael Raimondi, Wealth Manager, Clarus Group. “The challenge is achieving a balance between living a life aligned with what is most important to you today and accumulating for your future life. I often recommend that clients take time to clarify their core values and make sure their current spending habits line up.”
Retirement goals look different for everyone; customized retirement plans vary as working families’ needs differ from those of high-net-worth individuals. Model scenarios that consider changes in health, Social Security, and other factors and a plan for all eventualities helps determine priorities and empower people to live their best lives today without sacrificing their post-work prosperity.
