Retirement Sentiment Improves, but ‘Financial Vortex’ Lingers

Good news: Retirement sentiment is improving. Bad news: A financial vortex lingers and it could imperil U.S. workers’ retirement savings.

That according to the 2023 Retirement Survey and Insights Report released Tuesday by Goldman Sachs Asset Management (GSAM). In simple terms, the financial vortex is the reality that many clients, no matter how diligent they’ve been in saving for retirement, will face an unexpected expense(s) and some may not be financially prepared for it.

“The financial vortex threatens all Americans because, despite their best efforts to consistently save when employed, life’s unexpected bumps can meaningfully derail the best retirement savings plans,” Chris Ceder, senior retirement strategist at Goldman Sachs Asset Management, said in a statement. “Only 36% of US workers have three months of income or more saved for emergencies. Unplanned and often unpredictable financial challenges push too many of us off track, and catching up may be difficult. Saving for retirement must remain a top priority.”

Specter of Surprises Looms Large for Current Workers

The GSAM report is chock full of important nuggets advisors should address with clients, particularly those still in the workforce because those clients could be particularly vulnerable to the financial vortex.

According to the GSAM survey, 44% of workers cashed out an employer-sponsored retirement plan when leaving a job, up from 42% last year. Another 42% halted retirement savings due to financial struggles, representing a marked increase from 33% in 2022.

Of note to advisors working with large numbers of female clients, GSAM points out that 39% of workers left their jobs to become caregivers to loved ones and another 22% went from full- to part-time work to become caregivers. Those moves, while noble, can imperil any client’s retirement ambitions.

“Not being able to retire when workers want is a major theme: 21% believe the financial vortex will delay their retirement by four or more years,” adds GSAM. “Meanwhile, among retirees, 50% retired earlier than expected. Within that group, 47% retired for reasons outside of their control (most often for caregiving or poor health), and 54% retired more than four years earlier than expected.”

Planning, Education Matter

While the concept of a financial vortex sounds daunting, advisors can certainly clients ease that burden. In fact, clients should be actively seeking out the help of advisors because planning is essential when it comes avoiding financial missteps or mitigating the effects of surprise expenses.

Indeed, planning matters. Clients with a plan are apt to be more optimistic and on-track or ahead of schedule to the tune of 79% when it comes to retirement savings compared to just 34% of those without a solid plan in places, observes GSAM.

Further validating the role of advisors are data points from the GSAM report confirming the need for more financial education and literacy – core competencies of advisors.

“Financial literacy also matters: 47% of workers report managing their retirement savings on their own, and 23% manage their savings on their own but periodically seek advice,” concludes GSAM. “Yet only 13% correctly answered the ‘big five’ standardized financial literacy questions, which test principles of interest, inflation, compounding, and diversification. Those who correctly answered all five questions were far less likely to say their retirement savings were impacted by the financial vortex.”

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