Is the shortfall in retirement savings in America being greatly exaggerated?

There may not be a bull market in stocks of late, but there certainly is one in pessimistic retirement surveys.

According to the recently released Nationwide Retirement Institute Social Security Consumer Survey, 66% of Americans worry more now than they did last year about their retirement income as a result market of volatility and high inflation. And not just slightly more, but a 10-percentage-point spike from 2021.

Meanwhile, a full quarter of workers are now postponing their retirement as inflation forces more and more Americans to dip into their savings accounts, according to a report by BMO Harris Bank, which also found that 36% of Americans have already seen their savings hit by inflation.

Not to be outdone, BlackRock’s latest Read on Retirement survey revealed that 37% of Americans feel unprepared or unsure whether they are on track for retirement compared to the previous three years, with 47% of women –— more than any other group — reporting a lack of confidence.

Put all that gloom together and it’s easy to predict doom for the coming generation of retirees.

But is that necessarily the case? Is the future setting up to be that awful, or are all these disheartening surveys overstating the bear case for the future of retirement in America? Might they perhaps even be a contrarian indicator?

InvestmentNews sat down with David Musto, president and CEO of retirement services provider Ascensus, to get his views on whether Americans are being overly negative in their attitudes toward retirement. Ascensus is the country’s largest record-keeping services partner and third-party administrator, with over $745 billion in assets under administration.

InvestmentNews: What's the current state of retirement savings in the U.S.?

David Musto: We’ve all read the reports about how under-saved many Americans are for retirement, and that’s an ongoing concern — despite the market growth we’ve seen prior to the recent volatility. Solving for that relies on a combination of multiple factors — saver behavior, wage growth, retirement plan availability, employer matching support, legislation that further promotes or rewards saving, and more. More and more small businesses are adding workplace savings plans to their employee benefits offerings each year, and several states are enabling retirement savings programs for workers who continue to lack access to retirement savings at work. These are both steps in the right direction, and Ascensus clearly has seen this trend in our own business serving small and mid-sized businesses. 

IN: Will more Americans be forced to delay their retirements if stock and bond prices continue to slide?

DM: Retirement has always been a long game –— a very long game. The market has boomed and corrected countless times over the decades. No one likes to see their investment accounts fall in value, especially if you are planning to retire this year. It is important to remember that the S&P 500 at about 3,900 is at the very same level it was in March of 2021. In March of 2020 the S&P was at 2300, and few of us would have believed we’d be at 3900 today. 

IN: Is there anything people can do now to improve their retirement asset allocations if they are in or near retirement?

DM: We don’t provide investment advice at Ascensus, but I will say that periods of market volatility are always a good time to ensure your asset allocation is in line with your long-term objectives, and that’s best accomplished with the help of an experienced financial adviser.

IN: Did Americans become overconfident about returns due to easy money policies following the financial crisis? Will that change now that the Fed is tightening, and rates are on the rise?

DM: I tend to give savers more credit than that. Most people know retirement is a long game and you just continue to invest through each paycheck, maximize your employer match if you are fortunate enough to have one available, and over a full working career, you will likely be way better off than you were before or would have been otherwise. What really matters for retirement savings is whether people remain employed. The Fed’s actions could potentially have an impact on employment levels at some point down the road, but we are not seeing any signs of shock in our client base at this point. Plans are growing their rolls, not terminating. And savers are investing, not withdrawing. 

IN: What are you seeing retirement savers do to battle inflation? For example, are they adding more real assets to their IRAs?

DM: We’ve observed that savers tend to battle inflation more in their day-to-day spending habits than in their retirement accounts. We have not seen any material shifts in savings rates in retirement plans, but we have seen a modest slowdown in savings rates in our 529 college savings plans. This could suggest workers in America now view retirement contributions as a nondiscretionary outlay. Even as budgets are tightening due to inflation in food, fuel, housing, and other consumer staples outstripping wage gains over the past year, many are still putting something away for retirement. 

IN: What is the one thing that retirement savers can do to save money on retirement expenses?

DM: Assuming they’ve been saving regularly and taking full advantage of any available employer-matching contribution, savers also can explore other tax-advantaged savings vehicles — like the multiple tax saving benefits of health savings accounts that allow you to save for life’s other major expenses, separate and apart from setting aside money for retirement. Also, making thoughtful and healthy living and lifestyle choices now can help set up any of us for a better long-term health outlook — and reduced health care expenses later in life, when medical care often is one of the highest and most prevailing expenses incurred.