New research from PGIM, the $1.2 trillion global investment management business of Prudential Financial, has unearthed fresh evidence of persistent challenges in retirement and financial confidence among workers in the U.S.
The PGIM RetireWell Confidence Index – a barometer of sentiment that draws on more than 300,000 financial wellness assessments offered by Prudential Financial to American workers – indicates that since the second quarter of 2022, confidence levels have remained "below average."
Alongside that trend, there has been a pronounced widening of the gap between financial confidence today and retirement confidence in the future.
In the fourth quarter, respondents overall reflected “above average” levels of financial confidence, while their retirement confidence remained firmly in “below average” territory as they expressed mounting concern over their long-term financial security.
The deterioration in retirement confidence coincided with the onset of a notably difficult period for investors, characterized by a 19.4% drop in the S&P 500 index in 2022 – marking one of the equity market's worst performances since the 2008 financial crisis.
This downturn, coupled with high inflation and interest rate hikes, has presented a challenge for both stock and bond investors, with bonds experiencing one of their worst years on record.
"2022 was a relatively traumatic year for investors, where both stocks and bonds experienced double-digit losses,” said David Blanchett, portfolio manager and head of retirement research at PGIM DC Solutions. “This is incredibly rare, historically."
PGIM’s retirement confidence index, which scores retirement and financial confidence from 0 (low confidence) to 100 (high confidence), also found discrepancies across demographics. In particular, respondents nearing retirement – specifically, pre-retirees between 45 and 59 – reported the lowest average retirement confidence score at 37.
Another recent study from Vanguard hinted at differences in retirement preparedness between generations, with millennials between 37 and 41 years old being on track to replace 58% of their pre-retirement earnings compared to just 50% for “late boomers” aged 61 to 65.
Still, Blanchett signaled cautious optimism about the future. "If the economy keeps doing relatively well, I wouldn’t be surprised if financial confidence meets or exceeds 2021 levels at some point in 2024, but it will clearly take some time before retirement confidence returns to where it was," he said.
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