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For many Americans, retirement planning often seems unrealistic.
“With competing priorities, it’s very difficult to save as much as we ultimately want to save,” Ceder said in a recent Decoding Retirement podcast (watch video above or listen below).
As a result, a significant number of Americans believe they will have to delay retirement.
Although the negative effects of the “financial vortex” are easing (see chart below), the competing demands on people’s finances, from monthly expenses and financial strain to increasing healthcare costs, make it difficult to prioritize savings for the future.
However, working longer isn’t always the best fallback, according to Ceder. In recent years, the Goldman Sachs Pensions Survey and Reportwhich served as the basis for the interview with Ceder, showed that 50% of people end up retiring earlier than planned.
“People think they will be able to work longer to shore up their finances, but the reality is that if you have to retire early, it has a very significant impact on your ultimate retirement savings,” he said .
Those saving for retirement can do more to avoid this course of action of having to work longer.
Developing a personalized retirement plan is the best solution, according to Goldman Sachs survey results.
“When we looked at this, we really saw the magnitude of all the different ways that the planning aspect helped,” Ceder said. “We actually asked people a pretty simple question: Do you have a personalized plan that tells you how much you need to save for retirement and how to save and invest to reach that goal?”
The results were clear, he said. “Those who answered ‘yes’ consistently reported greater confidence in managing their savings, less stress and a better ability to balance competing priorities, allowing them to reach retirement without delay. This highlights the significant benefits of having a personalized retirement plan.
Some workers don’t have access to resources and planning tools that can help them get on the right track. But this is what workers expect most from their employers.
According to the Goldman Sachs report, retirement savings and investment advice are consistently valued by all types of investors, from self-directed and passive investors to advice-dependent investors.
Curtis Walker, a California state employee, examines retirement plan brochures at the Calpers regional office in Sacramento, California October 21, 2009. (REUTERS/Max Whittaker) ·REUTERS/Reuters
For those who have access to resources and planning tools, Ceder said it’s about making sure plans take into account a worker’s unique circumstances. How to take into account the different aspects of an individual’s life? For example, do they have a spouse, other assets, or family members for whom they are responsible? All of these play a role, according to Ceder.
Ceder also mentioned that creating a plan is not a one-time exercise.
If you’re 25, starting with a basic plan might make sense. But as you reach the top of your career, juggle family responsibilities, or find yourself in the sandwich generation caring for both children and aging parents, it becomes crucial that this plan adapts and grows as your situation evolves.
“What’s most important, in my opinion, is having that planning mentality,” Ceder said. “I almost see it as a behavior that will really evolve and grow as your life changes, but always keep an eye on what you need to do for the future.”
Ceder noted that 401(k) plan sponsors often lack a complete, 360-degree understanding of the worker’s overall financial situation – such as additional assets, accounts, liabilities and associated factors – beyond the specifics basic.
“401(k) plans, as great as they are, are usually limited to what they know,” he said. “Basically, they know the narrative that [they] have access to it. »
Ceder said workers should learn about alternative investment options, such as private equity, private credit, private real estate and managed accounts.
There is a growing emphasis on customization and diversification, he said, noting that target date funds are useful, but they are designed for averages. Ceder explained that alternative investments and managed accounts more closely align portfolios with individual needs, which can help maximize returns and ease savings pressures.
For some, a target date fund may be enough if their financial trajectory is on track. However, “if they’re off track, if they’re late, maybe [they] need a more personalized solution to help them get on the right track.
The general rule of thumb, Ceder said, is that an individual saves 15% between ages 25 and 65, and it’s that, plus investment returns, that allows you to save enough for retirement. But getting an extra 50% return on a multi-asset portfolio is essentially saving 1%, he said.
“This highlights the importance of plan sponsors and advisors doing more to create portfolios designed for the long term,” Ceder said. “We know there is a need to help alleviate some of the pressure on savings.”
Technology will continue to play an important role in helping workers save for retirement. Digital tools can ensure everyone has access to quality service, allowing advisors to intervene in unique scenarios.
And artificial intelligence could help plan participants understand their investment options or answer their questions. However, current regulations make it difficult to determine whether AI can be used to provide financial advice to 401(k) participants, Ceder said.
Some companies are moving toward offering services that reflect a worker’s complete financial situation. But it’s the “holy grail of retirement,” Ceder said. This is the challenge that companies are striving to meet.
