Retiree confidence in having enough money to live comfortably throughout retirement dropped significantly in the 2023 Retirement Confidence Survey, conducted by the Employee Benefit Research Institute and Greenwald Research. The survey recorded its biggest decline since the global financial crisis of 2008.
Craig Copeland, director of wealth benefits research for EBRI, explains.
Why the big drop?
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Inflation has had the biggest impact. Among retirees, 42% said the high cost of living contributed to their loss of confidence and 25% cited a lack of savings. And the two are related.
What’s the connection?
When things cost more, that leaves less for savings. Nearly 60% of retirees report that their retirement account balances decreased over the past 12 months, and two-thirds worry that the increasing cost of living will make it harder for them to save money.
In addition, 58% are concerned they will have to make substantial cuts to their spending. The poor performance of the stock and bond markets also had an impact on retirement balances.
Your survey found that retirees are still confident they know how much to withdraw from their retirement savings.
Once retirees in their seventies are required to take minimum distributions from their accounts, they tend to default to that as their benchmark number. Before that age, there’s a large variance in how much they withdraw, depending on how much they need.
Half of retirees say their goal is to maintain their asset levels, and fewer respondents than last year aim to grow their assets. What’s happening?
For quite a while before the COVID-19 pandemic, people could take their required minimum distributions and still increase their remaining balances because of the double-digit returns in the stock market. That wasn’t the case over the past year. We’ll have to see if it becomes a trend.
At the same time, two-thirds of retirees say their financial priority in retirement is to have income stability rather than maintain wealth. Any advice?
Now that interest rates have risen, money market investments are more attractive. But over the long term, stable-value funds have outperformed money market funds. Setting up a ladder of bonds that mature at different times is another option.
Are annuity products still a tough sell?
We see a little uptick in interest, but nothing significant. Many people don’t understand annuities, or they don’t want to give up the flexibility of having access to their money. They’re afraid they will die before they get their money out.
Do you foresee more options to help provide retirees with a steady stream of income?
We’ll see more plan operators offering systematic withdrawals. That’s more work for administrators, and it didn’t make sense when retirement account balances were small. But now that you have six-figure accounts, you have more assets to cover your costs, and it makes sense for employers to encourage people to stay in the plan.
How do retirees feel about Social Security and Medicare?
Most retirees who are receiving Social Security feel comfortable that they will continue getting benefits.
But Medicare is a different story. Medicare’s financing problems are more immediate, and people are concerned that they will be seeing higher deductibles and co-pays and that the number of available doctors may change.
Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance, in 2023. Subscribe to help you make more money and keep more of the money you make here.
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