Saving for retirement can feel overwhelming and even stressful at times for boomers and Gen Xers. Of Americans age 45 to 65, nearly half (49 percent) feel behind on retirement savings and are worried they’re already too far behind to reach their savings goals, according to the Chasing Retirement Study from my company, Allianz Life Insurance Company of North America.
Perhaps most surprising about this statistic: those expressing so much concern already have a decent-sized nest egg — averaging over $400,000. These people, identified in the study as Chasers, have been diligently saving and investing throughout their lives. Even so, many of them feel they’ve fallen behind where they should be in saving for retirement. And many worry it will be too late for them to have a comfortable retirement if they don’t increase their savings soon.
The Catch-up Game
Some 54 percent of the Chasers say they have too many other expenses to be able to save for retirement the way they’d hoped. Additionally, and not helping matters, only 39 percent work with a financial professional who can help them create a budget to balance their expenses and design a strategy for retirement saving.
Many Chasers are also at a distinct disadvantage because their savings and investments aren’t growing to their maximum potential. Only 53 percent have an Individual Retirement Account (IRA), and even fewer own individual stocks (35 percent), mutual funds (35 percent) or an annuity (14 percent). Money sitting on the sidelines in a bank account or money-market fund might feel safe, but it ultimately can have a very negative impact on long-term financial goals.
Conversely, among people who are feeling confident about their savings, 70 percent own an IRA, 56 percent own individual stocks, 51 percent own mutual funds and 28 percent own an annuity. Spreading out their investments may be playing into why these people feel more confident, since they have given their funds the most opportunity to grow.
The Case for Diversification
Diversification is a wise investing tactic since it helps spread out risk. (Keep in mind, however that diversification does not ensure a profit or protect against loss in declining markets.) As people reach retirement age, diversification becomes even more dependent on risk tolerance; traditionally those closer to retirement shouldn’t take on risk that could negatively impact their portfolio as retirement draws nearer.
The Allianz Life study found that 63 percent of Chasers feel they can’t take the risk of investing in high risk/high reward financial products and over 70 percent are willing to trade off some upside growth potential to have some protection from loss.
Working with a financial professional can help you calibrate your risk tolerance and determine whether more diversification is necessary to give your portfolio the opportunity to grow, while maintaining a certain level of protection. A financial professional can also help identify solutions you may not be aware of, including newer annuities that can offer upside potential and a level of protection from market volatility.
Finding the Appropriate Solution
The good news is that there are ways people who feel behind on saving for retirement can try to catch up and change their mindset to a more optimistic outlook.
It is never too late to take action to help ensure a stress-free retirement.
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