“With conflicting priorities, it’s very difficult to save as much as we ultimately want to save,” Seder said in a recent Decoding Retirement podcast (watch the video above or listen below).
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As a result, a significant number of Americans believe they should delay retirement.
Although the negative effects of the ‘financial maelstrom’ are diminishing (see chart below), the competing demands on people’s finances, from monthly expenses and financial hardship to rising care costs, make it difficult to prioritize savings for the future.
Working longer isn’t always the best backup plan, however, according to Ceder over the past few years Goldman Sachs Retirement Research and Insights Reportwhich was the basis for the conversation with Seder, showed that 50% of people end up retiring earlier than they planned.
“People think they’re going to be able to work longer to secure their finances, but the reality is that if you have to retire earlier, that has a really significant impact on your ultimate retirement savings,” he said.
Those who are saving for retirement can do more to avoid that uninterrupted action plan of working longer.
Developing a personalized retirement plan is the best solution, according to Goldman Sachs research.
“When we looked at this, it was actually the magnitude of all the different ways that the planning aspect helped,” Seder said. save for retirement and how to save and invest to achieve that goal.
The results were clear, he said. “Those who answered ‘yes’ consistently reported greater confidence in managing their savings, less stress, and an improved ability to balance competing priorities, all of which allowed them to reach retirement without delay. This underscores individual retirement.” significant benefits of having a plan.”
Some workers lack the planning resources and tools to help them stay on track, but that’s what workers want most from their employers.
According to a Goldman Sachs report, retirement savings and investment advice is consistently valued by all types of investors, from do-it-yourself and passive investors to those who rely on advice.
California state worker Curtis Walker examines pension plan brochures at the Calpers regional office in Sacramento, California, in 2009. on October 21. (REUTERS/Max Whittaker) ·Reuters
For those with access to planning resources and tools, Seder said, it’s important to make sure the plans take into account the individual’s unique circumstances or family members they are responsible for.All of these elements play a role, according to Seder.
Seder also mentioned that creating a plan is not a one-time job.
Starting with the basics might make sense if you’re 25. But as you move toward the peak of your career, take on family responsibilities, or find yourself in the sandwich generation caring for both children and elderly relatives, it becomes important for that program to adapt and grow with your changing circumstances.
“I think the most important thing is to have a planning mindset,” Seder said.
Seder noted that 401(k) plan sponsors often lack a comprehensive, 360-degree understanding of an employee’s overall financial situation, such as additional assets, accounts, liabilities and related factors beyond the basic details.
“401(k) plans, as great as they are, are generally limited in what they know,” he said [they] have access to.”
Seder said workers should learn more about alternative investment options such as private equity, private credit, private real estate and managed accounts.
There’s a growing focus on customization and diversification, he said, noting that target-date funds are useful, but they’re designed for averages. Seder explained that alternative investments and managed accounts match portfolios more closely to individual needs, which can help maximize returns and alleviate savings pressures.
For some, a target fund may be enough if their financial trajectory is right [they] need a more personalized solution to help them get on track.”
The usual rule of thumb is that an individual saves 15% between the ages of 25 and 65, and that, plus investment returns, is what gives you enough savings for retirement.But an additional 50% return on a multi-asset portfolio getting is essentially the equivalent of saving 1%.
“This underscores the importance of plan sponsors and advisors doing more to build long-term portfolios,” Seder said. “We know there is a need to help alleviate some of the pressure on savings.”
Technology will continue to play a big role in helping workers save for retirement. Digital tools can ensure that everyone has access to quality services, allowing advisors to participate in unique scenarios.
And AI can help plan participants understand their investment options or answer questions. However, current regulations make it difficult to determine whether AI can be used to provide financial advice to 401(k) participants, Seder said.
Some companies are moving toward offering services that reflect an employee’s full financial picture. But that’s the “holy grail of retirement,” Seder said. That’s the challenge companies are working to solve.
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