Retirement, It Is A-Changin’
Retirement Daily Guest Contributor
By Charlie Nelson
The word retirement suggests you’re “done” with working upon leaving the workforce. However, it’s no secret that the recent events of the COVID-19 pandemic have caused economic uncertainty and financial challenges for many families. Even more, recent data from Voya Financial has found that, as a result of COVID-19, more than half (54%) of employed Americans are now planning to work in retirement — with many (40%) noting an interest to have a “safety net” to cover unexpected costs and prepare for market volatility as their reasons.
While COVID-19 has certainly altered retirement sentiment for many, the fact is that the vision of life after 65 for American workers had changed long before today’s environment. Gone are the days of sunny island sands and afternoons on the golf course that many once pictured. But this isn’t necessarily a bad thing. For starters, according to the Center for Disease Control and Prevention, today people are living well into their 70s and 80s and beyond, making planning for retirement in one’s 60s less feasible.
“Retirement” might also include more than just financial needs as some believe it will help them stay mentally alert. Voya’s survey found that 56% of individuals would prefer to continue working in retirement to stay mentally alert and help maintain their cognitive ability. This could include a desire to work part-time versus full-time, or build an encore career to start one’s own business. At the end of the day, everyone’s goals and situation are going to be unique, leaving “retirement” to be a highly personalized approach.
However, if there’s one point of consistency, it’s that when it comes to saving for retirement, keeping a long-term view still seems to be a priority for many. The same Voya survey noted that 55% of individuals would rather save more for retirement than be completely debt-free. But, when it comes to retirement saving, it is important to remember this is a long-term goal and to not be distracted by shorter-term market volatility.
The 2007-08 global financial crisis is a good example of how markets can bounce back from even the most severe shocks. The U.S. economy contracted by 0.1% in 2008 and 2.5% in 2009, but, by 2010, the economy was growing at pre-meltdown rates, and stocks largely recovered by 2013. Keeping this in mind is important, as is ensuring you are thinking about your personal financial goals and timeline, regardless of your age, goals, or stage of life.
Individuals in their 20s and 30s who are investing for retirement need to remember that they have decades ahead to be in the market. For those with the longest time horizons, market volatility can bring benefits for long-term savers as continuously contributing to your 401(k) or IRA when markets are both up and down provides opportunities for dollar-cost averaging, which means you are investing periodically to acquire investments at various prices, rather than potentially only investing at times when markets are high.
For those who are pre-retirees or are in retirement, you too still have to think about the long term. While keeping tabs on the market is important and investing in stocks may be beneficial as part of your long-term strategy, it’s important to consider your sources of income. A defined benefit pension plan is one great option (if you are fortunate to have one), but you will also need to consider Social Security and possibly a product like an annuity to help you generate income that will cover your non-discretionary expenses in retirement.
Beyond retirement savings, many Americans will have additional competing priorities — now more than ever. This could mean dipping into emergency savings, higher health care costs, or general concerns about what actions to take or not to take when it comes to overall plans for their financial future. So it’s important to know where you can seek support through it all.
If you’re working with a financial professional, talk to them. In times of market uncertainty, many advisors say the best service they can provide is to keep their clients from panicking and help them understand the broader market dynamics — all while keeping long-term financial plans intact. If you’re working, you might consider seeking support from employer resources where available. More and more employers today are offering holistic financial wellness solutions to support their employee base, inclusive of things like: health savings accounts to offset the burden of medical costs; student loan debt support; and tools for building emergency savings. This type of support is becoming increasingly important. With millions of American workers having become financially impacted as a result of COVID-19 — either by lost wages or leaving work for health reasons — many individuals and companies alike could start to see a significant shift toward emergency savings accounts.
We are in a time where the definition of retirement is evolving and will continue to evolve because of COVID-19, and it’s clear people are thinking about retirement in a more holistic fashion. But if recent events have taught us anything, it’s this: The most important thing you can do is have a plan and stick to it.
About the author: Charlie Nelson
Charlie Nelson is chief executive officer of Retirement and Employee Benefits for Voya Financial, Inc. (NYSE: VOYA), which helps Americans plan, invest and protect their savings — to get ready to retire better. He oversees Tax-Exempt Markets, Corporate Markets and Retail Wealth Management — comprising the company’s workplace and individual retirement businesses, including 401(k), 403(b) and 457 plans — as well as Voya’s Employee Benefits business.
All data points outlined in this article are based on the results of a Voya Financial survey conducted through Ipsos on the Ipsos eNation omnibus online platform among 1,005 adults aged 18+ in the U.S. taken July 30–31. This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. Please consult an independent legal or financial advisor for specific advice about your individual situation. Products and services offered through the Voya® family of companies. Registered Representative of Voya Financial Partners, LLC (member SIPC).