While the Covid-19 crisis triggered severe economic hardships for many Americans, more than three-quarters of participants in a new study released Monday by Edward Jones and Age Wave credit the pandemic with helping them focus on what’s most important in life when it comes to retirement planning. Hint: It’s not all about the money.
The study, “The Four Pillars of the New Retirement: What a Difference a Year Makes,” reveals how the timing and funding of retirement have shifted as a result of the pandemic and how retirees are recognizing the importance of the nonfinancial aspects of a successful retirement.
The latest study, which updates an initial large-scale investigation of what it means to live well in retirement that began in 2019, has enormous implications for the financial advice profession as clients seek guidance on not just how to spend their money in retirement, but how to spend their time.
The initial study defined the four pillars of living well in retirement as health, family, purpose and finances.
“Over the past year, through these studies, we’ve witnessed an increase in people’s need and desire for help with retirement planning extending far beyond finances,” said Ken Cella, principal in the Edward Jones client services group. “By putting individuals and their families at the center and understanding how the four pillars complement each other … financial advisers seek to add value beyond investment returns.”
According to the latest online study conducted in March, retirees generally report much higher levels of contentment and happiness than non-retired Americans because they feel greater freedom from responsibilities and the freedom to pursue their own interests and purpose. In fact, 92% of retired respondents agree that a sense of purpose is the key to a successful retirement, and more than two-thirds derive the greatest sense of purpose from times spent with loved ones.
Of course, most retirees have more financial safety nets than working Americans, including Social Security and Medicare, pensions, savings and investments and home ownership. Without having to worry about losing a job or how to pay the bills during the pandemic, many retirees were able to focus on the qualitative aspects of their retirement.
“While every American has been challenged by the disruptions of the last year, we have also seen extraordinary amounts of gratitude and resilience, especially from retirees,” said Ken Dychtwald, founder and CEO of Age Wave. “Research has shown that having a sense of purpose can actually reduce the risk of cognitive decline, cardiovascular disease and depression, so finding meaning in one’s life is essential to a long, healthy and potentially fulfilling retirement.”
Not all the lessons from the pandemic are positive. Although 70% of Americans say the pandemic caused them to pay more attention to their long-term finances, the economic fallout has deepened the gender gap. Over a lifetime, the typical gender pay gap plus career interruptions results in a $1.1 million earnings gap for women, the study found.
Only 41% of women said they continued to save for retirement throughout the pandemic compared to 58% of men. As a result of lower earnings and lower savings, women’s retirement account balances are only two-thirds the amount of their male counterparts'.
Current retirees reflecting on the keys to a successful retirement say the financial and non-financial aspects are equally important, including how to live a healthy life (95%); how to maintain or improve family relationships (94%); how to find activities that impart a sense of purpose (94%); and how to save enough money to last through retirement (93%).
But pre-retirees don’t seem to be listening to that sage advice. Few pre-retirees say they have thought about any of those aspects of retirement planning, and those who have rank their priorities differently, including: retirement finances (37%); health (21%); sense of purpose (16%) and family (12%). But 77% of those planning to retire said they wish there were more resources to help them plan for their ideal retirement beyond their finances.
It sounds like fertile ground for deeper conversations with clients about how to plan for a long and satisfying retirement.
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