Retirees’ financial confidence outpaces that of workers

One of the biggest divides between pre-retirees and retirees is fear of the unknown. Over the past several years, numerous studies have documented faltering financial confidence among working Americans about their prospects for a secure retirement versus increased satisfaction among retirees who have figured out how to make the leap to post-paycheck living. A major study released last year by Edward Jones and Age Wave credited the Covid-19 pandemic with helping retirees focus on what’s most important in life — and it’s not all about the money.

The study, “The Four Pillars of the New Retirement: What a Difference a Year Makes,” found that 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.

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.

Now, as the United States passes the two-year anniversary of the onset of the Covid-19 pandemic, a new study from Allianz Life Insurance Co. tells a similar tale about the gap in financial experience and confidence between younger Americans and their retired counterparts.

Nearly two-thirds (63%) of non-retirees said they fear running out of money more than they fear death, versus less than half (46%) of retired respondents, according to the new 2022 Retirement Risk Readiness Study. The study results are based on an online survey of 1,000 individuals ages 25 and older with annual household incomes of $50,000-plus for individuals, $75,000-plus for married couples, or investible assets of $150,000 or more.

Three categories of Americans were surveyed to get different perspectives on retirement: pre-retirees who are 10 years or more from retirement; near-retirees who are within 10 years of retirement; and those already retired.

Americans who have yet to retire and who are still balancing careers, family and savings are more worried about their financial future than they were at this point last year, the study found. Non-retirees are significantly less confident than current retirees, and this is particularly true for people who are 10 or more years from retirement.

Nearly two-thirds (65%) of non-retired Americans said they are worried about not having enough money to do all they things they want to do in retirement, compared to just 28% of current retirees. Non-retirees are also more than twice as likely (69%) to be worried about the rising cost of living and being able to afford necessities than retirees (33%).

Retirees, on the other hand, are feeling more relaxed about their finances than they were last year at the height of the pandemic, the study found. Less than half of retirees (47%) are worried that the stock market will experience a severe downturn and hurt their nest egg, compared to 65% at this time last year. Fears about rising health care costs have also moderated since last year: just 43% of retirees said they worry health care costs will be so high that they can’t afford needed care, down from 73% in 2021.

While the ongoing Great Resignation continues to make headlines, only 42% of retirees in the survey said they retired earlier than expected, down significantly from 68% the previous year. Notably, fewer retirees said they retired early as a result of unexpected issues such as health problems or job loss, and a higher percentage were able to retire on their own terms, either because they felt financial ready or wanted to have fun while they were still young enough to enjoy it.

Non-retirees were more likely to regret some of the financial decisions they made during the pandemic, including 34% who shifted retirement account investments into cash; 39% who reduced the amount they were saving for retirement; and 54% who said they spent too much money on non-necessities.

“While it is encouraging that many retired Americans were able to weather the financial storm caused by the pandemic, it’s equally concerning that so many pre-retirees did not escape unscathed,” said Kelly LaVigne, vice president of consumer insights for Allianz Life. “The reality is, financial aftershocks from the pandemic are still ongoing, so both groups need to make sure they are taking the necessary steps to mitigate risks to their retirement security.”

The risk is particularly great for the more than one-quarter of pre-retirees who said they're likely to take a new job this year, either with a new company or by going into business for themselves. Such job changes can have long-term implications for future retirement security.

“During these periods of uncertainty, it can be beneficial to work with a financial professional so you can make sure all of the bases are covered before making any drastic changes,” LaVigne said.

(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s new 2022 ebook at Maximizing Social Security Benefits)