US retirement outlook has improved, but there's a problem

The retirement years of millions of Americans appear to be on a better course, but the reality may be less rosy according to Goldman Sachs Asset Management.

The firm’s Retirement Survey & Insights Report 2023 shows an improvement with 65% of the U.S. workers polled believing they are on course to achieve their retirement savings goals, up from 57% last year.

But the cost of living has added pressures on household budgets and, along with some other financial responsibilities, many people may be forced to delay or reshape their retirement plans, despite improved market and economic conditions.

Credit card debt, saving for college, and caring for (or financially supporting) loved ones creates a ‘financial vortex’ which, over the long term, could reduce retirement savings by 37%.

“While retirement sentiment improved over last year, the financial vortex remains a huge problem for many workers and retirees,” said Chris Ceder, senior retirement strategist at Goldman Sachs Asset Management. “Its challenges are largely immune to improvement in markets and the economy and will continue to impact new generations of retirement savers.”

Goldman Sachs’ research shows that just 36% of U.S. workers have three months of income saved for an emergency.

DERAILED PLANS

Many respondents to the survey were forced to make some tough choices.

The report found that 44% cashed-out retirement savings due to a job change, 42% stopped saving for their retirement due to financial planning (up 5 percentage points from 2022), 22% left the workforce to provide caregiving (almost double last year’s share), and 22% moved from full- to part-time work to provide caregiving (up from 10% in 2022).

Looking ahead, a fifth of poll participants believe their retirement will be delayed by four or more years.

However, among retirees, half did so earlier than planned and not always by choice.

“Early retirement, especially forced, is an important risk to consider,” said Michael Moran, senior pension strategist at Goldman Sachs Asset Management. “As employers’ roles in supporting the wellbeing of employees expand, they and their advisers will need to draw on increasingly diverse sources of expertise.”

FINANCIAL LITERACY, FINANCIAL PLAN

The importance of both financial literacy and a financial plan are highlighted in the report.

Almost half of workers report managing their retirement savings on their own, and 23% manage their savings on their own but periodically seek advice.

But just 13% were able to correctly answer the “big five” standardized financial literacy questions – this small cohort was far less likely to say their retirement savings were impacted by the financial vortex.

Having a financial plan is key too with 79% of workers with a plan reporting retirement savings on-track or ahead of schedule, compared to 34% for those without a plan.

“Many employees can break through the financial barriers life throws up with careful planning,” said Candice Tse, global head of Strategic Advisor Solutions at Goldman Sachs Asset Management. “Employees should take full advantage of the enhanced benefits many US companies are offering. The difference between dreams and goals is action.”