August 10, 2023

Many prospective retirees say they lack the financial know-how for a confident retirement.

Of the one-third of pre-retirees financially near the line—with just enough assets to support retirement—half express a lack of confidence in their readiness for retirement. For this group, there is little room for error in the event of a market downturn, persistent inflation, or higher expenses (for example, due to chronic or end-of-life illness). People in this group would most benefit from greater certainty over how to manage their future spending, access to longevity protection, and tax-optimized withdrawal strategies.

Among the 47 percent of pre-retirees who indicate that their households lack sufficient assets to retire securely (the two lower rows in Exhibit 2), two-thirds express appropriate concern over their readiness for retirement. The remaining one-third—those who are less concerned about retirement—show a greater willingness than other segments to tap into home equity. Households in these segments will need to come up with a plan quickly, likely including drastic lifestyle spending cuts pre- and post-retirement. Some may decide to delay retirement.

Even among the 19 percent with sufficient assets to be financially secure, a third remain concerned about having enough for retirement, saying they feel “not ready” for and “concerned” about their future retirement. These attitudes may lead them to be overly conservative: underspending in retirement or holding too high a percentage of their savings in cash in an inflationary environment.

In this financially sufficient but not confident segment, many consumers have prepared or are actively preparing for retirement: 49 percent say that in the last five years, they undertook at least three retirement review activities such as engaging a financial adviser or learning about financial planning. This subset has an urge to preserve assets, driven by fear, consistent with what the retirement industry has dubbed the “retirement consumption gap,” where households make drastic cuts in spending that are probably unnecessary and potentially unhealthy.

For any questions about your retirement readiness, reach out to us now at 901-435-4250.

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