Survey reveals even one million dollars is not enough to allay retirement concerns
High-net-worth individuals (HNWIs) were concerned about their ability to retire comfortably even before 2022, but those worries are only deepening as investors this year face steep losses in retirement accounts and challenges to their core beliefs about saving, spending, and investing.
That’s according to data from a new poll of U.S. investors with US$1 million or more in investable assets conducted by Natixis Investment Managers (IM).
The survey found that even millionaires are worried about their capacity to retire comfortably in the future. Although they anticipate retiring at the relatively young age of 63, nearly six in ten (58%) HNWIs indicate they are prepared to work longer than they anticipate.
However, it might not be so simple: while 58% acknowledge they will probably have to work more hours than they'd want, 44% worry they won't be able to.
Read more: Inflation is delaying retirement goals for millions of Canadians
Almost half (42%) of HNWIs are so concerned about retirement security that they avoid thinking about it at all. More than a third (35%) of millionaires feel "it will take a miracle" to achieve a secure retirement, whereas just a third (31%) of those who make less than US$1 million do.
Concerns about inflation are accompanied by worries about rising interest rates, which are problematic for both savers and retirees.
“A decade of historically low rates impeded investors’ ability to annuitize assets, leaving many retirees with a less-than-ideal income,” said Liana Magner, Executive Vice President and Head of Retirement and Institutional in the US. “It’s true that the overall level is still low from a historical perspective, but rates are now rising on higher government debt. Together with persistent fears of a global recession, we’re seeing new risks emerge.”
Magner adds that even while the effects of inflation and low interest rates might lessen, rising healthcare costs are one factor that affects people in retirement. Most respondents polled (65%) agree that long-term care expenses including nursing care and healthcare bills will have a significant impact on financial security in retirement.
Read more: 70% of Canadians are worried about covering retirement costs
A long-standing retirement drawdown rule of thumb recommends taking 4% of assets out as income in the first year of retirement, and then 4% + inflation each subsequent year. Based on this rule, a million dollars might not be the cozy safety net many might anticipate, especially if inflation keeps rising.
Additionally, the 60/40 rule that advocates for a portfolio of 60% stocks and 40% bonds does not take into account the increased and developing risks to the equity part or the unfavorable low rate environment for bonds. Even when rates rise, it will take some time for them to reach a comfortable level where they can provide retirees with a reliable source of income.
Changing the "three-legged stool" of retirement funding (government-provided pensions, employers, and individual savings) may also be necessary. Three tenths (31%) of respondents think it will be challenging to make ends meet without Social Security amid worries about the long-term stability of the program and mounting public debt.
