Investors grappling with ongoing inflation, high interest rates and an unstable economic environment are considering delaying their retirement plans, according to Nationwide’s eighth annual Advisor Authority.
The survey by the Nationwide Retirement Institute finds that a quarter (25%) of pre-retirees—defined as non-retired investors aged 55-65—are planning to retire later than expected and another 15% are unsure if they will ever retire.
Although a number of factors are contributing to their decision to delay retirement, the majority (60%) said inflation poses the greatest immediate challenge to their retirement portfolio over the next 12 months. An economic recession (46%), market volatility (36%) and taxes (23%) are also factors that pose immediate challenges to their retirement portfolio.
Social Security Stability?
In addition to these factors, chief among the pre-retiree investors’ concerns is the long-term viability of Social Security.
In fact, more than half (53%) of pre-retirees are concerned about the long-term viability of Social Security, fearing that these benefits will no longer be available to them in retirement. To that end, one in four (26%) pre-retiree investors believe Social Security will run out of funds in their lifetime, with the same number (26%) believing Social Security will run out of funds after they have entered retirement.
Nationwide points out that these fears are not unwarranted, as the likelihood of Social Security running out is slowly becoming a possibility. According to the 2023 Social Security Trustees report, 23% of scheduled benefit payments for recipients could be depleted as soon as 2033.
And yet, despite concerns regarding the program's stability, the majority of pre-retirees who say they have strategies to protect against outliving their savings are primarily relying on Social Security (52%). Others have leaned into additional options, with 46% of respondents indicating that they have incorporated annuities into their retirement plans to protect against outliving their savings.
"I'm hopeful Congress will develop a plan to shore up the long-term viability of Social Security, but for now there remains some uncertainty about what the program will look like years down the road," said Eric Henderson, President of Nationwide Annuity. "The best thing those nearing retirement can do is to work with an advisor to choose the right time to claim benefits. This is a decision with huge implications for income over the course of retirement—which for many people could be 25-30 years or longer.”
Changes in Approach
Many investors nearing retirement also say they are planning to change their approach to saving for retirement by managing their investments more conservatively (30%) over the next 12 months. Nearly one in five (19%) are planning to contribute more to their 401(k) or employer-sponsored defined contribution plan each month. Just 10% are planning to manage their investments more aggressively.
Investors are also increasingly turning to financial professionals for retirement guidance, according to the findings. Nine in 10 (90%) pre-retirees are concerned about a U.S. economic recession over the next 12 months, and of the 49% of pre-retirees that currently work with an advisor or financial professional, 40% began working with one over the last 12 months.
This jump in investors seeking advice stems from the security and guidance financial professionals can offer their clients. Nearly a third (30%) of pre-retirees working with an advisor do so to feel more confident in their financial future, and a large majority (88%) of pre-retiree investors say having a plan for their retirement helps them feel in control of their financial future.
Pre-retirees say the reasons that are most likely to compel them to work with a financial professional or influenced them to work with their advisor include:
- years of experience (37%);
- recent or current market conditions (17%);
- personalized advice for a holistic financial picture (16%); and
- the prospect of an economic recession (16%).
Accordingly, nearly half of advisors are helping their pre-retiree clients prepare for near-term retirement by adopting strategies to protect their clients' assets against market risk (48%) and ensuring their pre-retiree clients have enough liquidity to cover expenses for two years in the event of a financial crisis (42%).
“Advisors recognize investors' desire to make the right moves as they near retirement," adds Henderson. “They can start driving positive conversations with these clients by understanding their retirement goals, helping them predict and plan for fixed expenses and determining the right time to claim Social Security.”
The research was conducted online within the U.S. by The Harris Poll on behalf of Nationwide from Jan. 4-13, 2023, among 511 advisors and financial professionals, and 789 adult investors with $10,000 or more in investable assets.
