Retirement is changing. The retirement landscape today's pre-retirees saw their parents pursuing was different in scope and means. The average retirement length was shorter, and the percentage of workers covered by a traditional defined benefit pension plan was far higher.
Long-term planning can be hard even when we know the variables, but retirement preparation today can be riddled with unknowns. That's why we believe relevant background information and access to the latest research are the bedrock for developing a sound retirement approach.
Today's pre-retirees are living longer and healthier lives, changing careers frequently and experiencing the freedom of less conventional career paths. The State of America's Workforce, a 2018 study of more than 2,000 Americans working full-time aged 40-70 years by the Indexed Annuity Leadership Council (IALC), provides a closer look at the retirement conditions and opportunities facing this generation.
Key Study Themes and Insights
The IALC study offers a broad cross-section of the pre-retirement population. In this article, we highlight three central themes from the study that can help you assess retirement readiness based on where you work, how you expect to earn income and what your retirement income goals are.
1. Retirement Readiness by Industry
The majority of today's workforce (57 percent) is looking forward to having more time for family and their favorite activities. Overall, across all industries and workers, an optimistic 21 percent say they are not worried. However, almost one-fifth of all Americans approaching retirement are at the low end of the readiness spectrum. This is calculated, in part, based on the percent of money needed for retirement that respondents reported already saved.
In general, workers in blue- and gray-collar occupations are less prepared for retirement than their white-collar counterparts. That said, on average, both groups report having less than half of what they believe is needed, and fall into either a "not very ready" or "not ready at all" category. Specifically, retirement readiness scores across industries are:
- White-Collar Workers – 49.1 percent saved
- Blue- and Gray-Collar Workers – 44.7 percent saved
- All Workers – 46.9 percent saved
Access to employer-sponsored plans, like 401(k)s and pensions, correlates to retirement readiness. Larger companies tend to have higher satisfaction rates regarding the retirement options provided, and taking advantages of these opportunities can help employers deliver on planning options.
For individuals with limited access to retirement products at the workplace, there are more and more retirement savings vehicles available that go beyond the employer. Researching retirement income options is a fundamental step toward stability through a balanced approach.
2. Retirement Income Sources
Retirement income often comes from many different sources. When asked what sources of income they expected to rely on in retirement, the answers were largely traditional pools, with more than three-quarters of surveyed workers expecting to be able to rely on Social Security during their retirement. Below are the top three expected sources of retirement income:
- 78 percent Social Security
- 62 percent 401(k) distributions
- 54 percent personal savings
However, as the study points out, what might be the most important part of retirement planning – a diversified portfolio – was only cited by less than 60 percent of workers surveyed. This shows a significant opportunity to take a more active role in a shifting retirement landscape.
Of course, there is no one right answer or guaranteed sure thing. But, diversifying through a mix of retirement savings options (i.e. 401(k) plans, IRAs, Roth IRAs, fixed index annuities, and/or mutual funds) can help position you for income growth and asset protection. Thinking beyond obvious sources of retirement income can help make the difference between ready and unprepared.
3. Retirement Income Goals
Much of the study highlights key disparities across the workforce, but it shows a country with shared retirement goals. The retirement readiness research shows high percentages of common, core retirement goals:
- Lifetime income – 78 percent
- Stability of income – 76 percent
- Principal protection – 71 percent
While Americans can identify their retirement income goals, only 2 percent of pre-retirees own a fixed index annuity, which can fulfill all of these objectives, in addition to offering a guaranteed rate of interest and tax-deferred growth. This type of annuity leans into the desire for certainty by providing the option to receive a steady stream of funds, and helping Americans meet their retirement income goals.
Talk to a Financial Professional
Across all white-, blue- and gray-collar workers, at companies of all sizes, the most common source to receive information or advice about retirement planning was from a financial professional. Consider consulting with a financial advisor or insurance agent as you develop your retirement strategy.
The information provided in this blog was obtained from the Indexed Annuity Leadership Council “The State of America’s Workforce: The Reality of Retirement Readiness” 2018
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