24 July 2024

What's Holding Back Americans from Saving for Retirement?

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Americans across generations face a vortex of challenges that are hindering their ability to save, leaving many with less than 50% of income replacement in retirement, according to an annual survey by Goldman Sachs Asset Management.     

In fact, findings from the firm’s Retirement Survey & Insights Report 2022 show that all generations of Americans have been significantly impacted by competing financial priorities and life events that have derailed the ability of many to save for retirement.

The survey—which seeks to learn directly from plan participants about their experience preparing for, transitioning to, and managing their finances in retirement—finds that this financial vortex of challenges includes, but is not limited to, credit card debt, paying existing loans, saving for college, caring for and financially supporting family members, time out of the workforce, financial hardship and too many monthly expenses.

As a result, 53% of working Baby Boomers and 51% of Gen X respondents said they are behind in their retirement savings. Moreover, only 11% of working Baby Boomers and 12% of GenX are “very confident” in meeting their retirement goals. Another 40% of working Baby Boomers and 32% of Gen X respondents are just “somewhat confident,” while 30% of working Baby Boomers and 40% of Gen X expressed concerns about meeting their goals.

Perhaps because they have a longer timeframe before planning to retire, younger generations have brighter outlooks. Just 34% of Millennials and 27% of Gen Z respondents report being behind schedule in their retirement savings. Additionally, 31% of Millennials and 31% of Gen Z are “very confident” they will meet their retirement goals, while just 19% of Millennials and 12% of Gen X expressed concerns. Meanwhile, nearly 4 in 10 (39%) Millennials and 47% of Gen Z respondents increased retirement savings over last year, while 32% of Baby Boomers and 33% of Gen X decreased theirs.

“The financial vortex is the new reality for retirement savers today,” says Mike Moran, Senior Pension Strategist at Goldman Sachs Asset Management. “Some challenges are common life events, such as buying a home or starting a family, but market volatility and high inflation are beyond individual control. It’s not a question of if, but when someone will be impacted.”

Moran explains that knowing how to adapt to keep retirement savings on course is key to navigating these challenges. “The longer an investor remains off-track, the larger the adjustments may need to be to fully course correct. But more likely, we believe some will retire with insufficient savings and need to adjust their retirement lifestyle and expectations, accordingly,” he observes.

Impact Statements 

Among the reasons working respondents gave for falling behind, 46% reported that a financial hardship caused them to stop saving for retirement—some for three years or longer. In addition, 43% of working respondents reported they needed to take time away from the workforce to provide caregiving for a family member. When they did, 39% said it caused them to use some of their retirement savings and 25% stopped saving for retirement.

Meanwhile, during the pandemic, 14% of working Baby Boomers, 25% of Gen X, 33% of Millennials and 32% of Gen Z respondents said they withdrew money from their 401(k) plan without penalty to cover expenses. Over half (58%) of working Baby Boomers said they would not pay back these funds within three years, while most Gen X (65%), Millennials (81%), and Gen Z (72%) respondents reported that they would repay their 401(k) accounts within that time period.

To that end, 37% of working respondents expect the effects of the pandemic to delay their retirement.

Competing Challenges 

As generations age, their financial challenges inevitably grow more complex and expensive, and their expectations around how long they intend to work and how much they need to save for retirement may change. The generational breakdown of the financial vortex challenges among working respondents is:


Source: Goldman Sachs Asset Management

“Having dealt with life’s other financial challenges, many retiring Baby Boomers are feeling the pinch of inadequate retirement savings,” observes Chris Ceder, Senior Retirement Strategist at Goldman Sachs Asset Management. “Gen X is now at the critical stage to navigate myriad short-term goals, such as college savings, caregiving, and family life, all while keeping their long-term savings on track.”

While many survey respondents report being behind schedule, there is still time to adjust, adds Ceder. “However, the timeline is narrowing. Millennials and Gen Z will be next up and currently report the highest impact from competing priorities. Navigating these obstacles will be critical to avoid falling behind on their savings,” he says.

Role of DC Plans and Advice 

Almost all (95%) respondents consider financial help—education, advice and counseling—important to successfully manage their retirement savings. The top three challenges they seek advice for are:

generating income (34%);

understanding how long their savings will last (32%); and

understanding if savings are on track and, if not, how to adjust (29%).

Employer-provided DC retirement plans are the top source of education and advice for current workers (32%), followed by financial advisors (31%) and family members (30%).

As for how they like to receive advice:

38% of workers said they prefer in person, phone or video conference with a financial advisor;

34% were open to a combination of digital and human advice; and

28% prefer digital or technology-based advice alone.

“Advancements in technology continue to enhance employer-provided DC plans, giving them the power to personalize the retirement planning experience for plan participants,” adds Ceder. “Everyone will have a unique path to retirement and so it is increasingly important to meet them where they are to help them reach their goal.”

The Goldman Sachs strategist further notes that they “expect this trend to rapidly accelerate as the need for greater financial support and market challenges—such as intense volatility, rising rates, and persistently high inflation—elevate the risk of reaching retirement underprepared.”

The survey was conducted by Goldman Sachs Asset Management and Qualtrics Experience Management among 1,566 U.S. participants between July and August 2022. Participants included 967 working individuals across generations (Baby Boomers, Generation X, Millennials and Generation Z); and 599 retired individuals aged 50-75.

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