Retirees Aren’t So Different

Maybe I crossed the Rubicon, but I have been thinking a lot in my personal life about retirement. Perhaps it stems from the realization that after working in the retirement services industry for more than 25 years, I really don’t have all the answers. I’m not sure how this happened, but I don’t know everything I need to know about taxes or when to claim Social Security. Worse yet, my family is being taken along for the ride. But at least retirement is still a long way off.

My angst and self-doubt is not unique to many late-career professionals who are starting to think about how they will turn a lifetime of saving, investing, and accumulating wealth into spending it in retirement.

In an attempt at further self-depreciation, I can report that T. Rowe Price’s most recent Retirement Savings and Spending Study1 research insight confirms that my concerns about my own retirement are not unique. In our most recent study, we took an in-depth look at financial wellness. As I’ve shared in the past, a concern I have with most definitions of financial wellness is that they focus on the actions taken today. However, the true benefit of financial wellness comes in its ability to create capacity for saving for long-term financial goals such as retirement or resiliency to deflect the unexpected financial shocks like job loss or major household expense.

To measure this, we created a financial wellness index that measures:

1. Household financial behaviors (e.g., having and sticking to a budget or minimizing the use of credit cards)
2. Defining and measuring progress being made towards financial goals (e.g., saving for retirement or purchasing a home)
3. The impact of actions today affecting prospects for a quality retirement. (e.g., I will need to lower my standard of living or I will be able to withstand a financial shock such as a medical expense).

Not surprisingly, what we found to be correlated with high financial wellness index scores were retirement savings, lower levels of debt, and homeownership. These scores changed over time, but in ways that we didn’t expect. In short, we found is that while people developed financial capability in the form of improved household financial behaviors and progress made toward financial goals, they became less confident in the likelihood of a quality retirement.

What we observed is that the years leading up to retirement are the most fraught with uncertainty. In this regard, I am clearly not unique! My personal remedy for solving my unease was to decide with my wife to hire a financial planner.

To be honest, this has helped me feel more confident. And more importantly, I can see how the actions I have been taking all these years – saving for retirement, not taking on credit card debt, and spending below our means – have contributed to a newfound confidence. Unfortunately, this is where I diverge from most. In our research, we found that only 4 in 10 of the retirees we surveyed used the services of a financial professional to help them plan for retirement; something that employers and financial professionals can help to address both in- and out- of plan.

Whether lacking confidence or not, people do eventually retire. In our research we asked both workers and retirees a series of question about their expectations (workers) and realties (retirees) of retirement. What we found is that, for many, the uncertainty of pre-retirement has given way to the experience of being retired and the outcome is better than they anticipated. Still, one has to wonder if the outcome could be better still with greater access to help and advice to not only plan the process but to facilitate it as well.

Our research shows that retirees are not all that different than workers. They need help to achieve financial wellness. I often joke that I am always aiming at the horizon but if I were ever to reach it I would be ruined. I think this applies to financial wellness as well. There are always things we can improve upon today and there are consequences in the future—until the future is moot.

For financial professionals, there is great opportunity to help workers accumulate wealth and manage that wealth in retirement. For employers, the opportunity is different but still great. For them, the optionality revolves around if they want to serve the needs of their retiree populations and how. Our research shows there is great appetite for financial guidance from employers, as more than 8 in 10 of those we survey shared that the worksite is the primary place they look for advice and support for their lifetime financial goals. This should serve as encouragement to both employers and the financial professionals that serve them.

1 The Retirement Savings and Spending Study was conducted online June 5–24, 2020. A total of 3,420 participants, who are currently contributing to a 401(k) plan or are eligible to contribute and have a balance $1,000, responded. The survey also included 1,007 retirees who have retired with a Rollover IRA or left-in-plan balance.

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This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of August 2021 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

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