How to get people back on track with pandemic-induced financial fatigue

People are worn out. They are trying to weather the stress of the pandemic, a perpetually volatile market and record inflation. And for many who have been retired for years, they have decades of work ahead of them.

These younger Americans are in the midst of their working years—those critical years of retirement savings. It’s not easy to keep those retirement goals in mind when current finances are uncertain.

Allianz Life’s new 2022 Retirement Risk Readiness Survey* shows that people who have yet to retire are far more concerned about their financial future than retirees, especially after two years of uncertainty about the pandemic.

The big point: People who are further away from retirement feel financially at risk.

The majority of younger Americans (especially those more than 10 years into retirement) are more afraid of running out of money than of dying. In the survey, 63% of non-retired people said they were more afraid of running out of money than of death. Meanwhile, only 46% of retirees had the same fear. All people save and invest in the same market. Yet these younger Americans are far more concerned about their financial future.

Measures taken during the pandemic may be one reason why they don’t feel safe because, according to the study, non-retired Americans made some financial decisions during the pandemic that left them in a precarious position:

  • 34% withdrew money from investment accounts such as a 401(k) or IRA.
  • 39% reduced the amount of money they put in their retirement accounts.
  • 54% said they spend too much on unnecessary items.

In general, people should refrain from touching retirement investment accounts until they leave the workforce. They must also maintain contributions to those accounts. But these moves have already happened – a missed opportunity. So from today on, let’s focus on what people can do to address the risks to their retirement security.

Here are some tips for getting back on track or staying on track toward retirement goals. The proposed SECURE ACT 2.0 looks set to be passed at the time of writing, and some provisions will help make retirement savings more attractive and affordable for younger pre-retirees.

Go back to basics

Sometimes you need to go back to Finance 101. Look again at your monthly income and expenses. Find out how much you can reasonably save – then do it. Make a plan to pay off debt, especially high-interest or non-mortgage debt, such as credit card debt and car loans.

The hardest part about this process is that it involves work and brutal honesty. You have to write everything down – don’t expect to remember everything. This is where commitment begins.

Then start looking at the list of ways you can make these efforts work even harder for you. First, consider putting that savings into a high-yield savings account. Once you have an emergency fund of about half a year’s worth of cash expenses, you can start depositing money into investment accounts.

If your employer offers a retirement savings plan, consider signing up for it. Many companies also offer employees a match on contributions to a retirement account as part of their benefits package. Make the most of it. That means if you make $50,000 a year and your business equals 5%, you can invest $2,500 a year in a 401(k) plan and automatically double that with another $2,500 from your employer. At the end of the year, you just put 10% of your salary into retirement savings.

The proposed SECURE ACT 2.0 includes a provision providing for automatic employee enrollment at a 3% fee, which is increased by 1% each year. Before this happens, make sure you are comfortable with that amount. If student loan debt prevents you from making contributions, there is currently a provision that allows employers to match what you pay in student loans against a contribution to your 401(k) or other employer plan. If the account is approved, you must ask for it.

You may also qualify for tax credits for those contributions to retirement accounts. The savings are available for low to middle income families. The Saver’s Credit gives a tax break for contributions to an IRA or employer-sponsored retirement plan.

Automate your savings

The easiest way to save is to not think about it. This is one of the reasons why 401(k) contributions are so great. They come out of your check every pay period without you having to make an active decision. This eliminates the temptation to spend, spend, spend. Especially if you are among the more than half of the non-retired people who said they spent too much money on unnecessary things during the pandemic.

By examining your budget, you can figure out how to change your monthly cash flow to put more money in savings and investment accounts. Automatic transfers from check-in to these accounts will create strong habits. You can start each week with something as simple as a $10 transfer to these types of accounts.

Catch-up contributions

Once you reach age 50, you can make catch-up contributions to IRAs and 401(k) plans. That means you can go beyond the normal contribution limits allowed in those plans. This can help compensate for not saving as much as you would have liked in the past.

The typical contribution limit for 401(k) plans is $20,500 in 2022. With a catch-up contribution, you can put another $6,500 into the plan. The proposed SECURE Act 2.0 has a provision to increase catch-up fees to as much as $10,000 from age 62. There may also be a way for your employer to match your Roth 401(k) contributions that can potentially add more tax-free retirement income for you later in life. Consult with a tax advisor whether this makes sense for you.

Manage your risk

Don’t be tempted by a potentially huge advantage. If you’re feeling behind, you may want to protect the money you invest.

Of course, a riskier investment can yield a bigger payout over time than the traditional, safer choice. But that means the risk of losing is also greater.

Consider creating a balanced portfolio of investments with varying levels of risk. That balance should include financial products such as index funds, bonds, and annuities that have historically been less risky. Investments that offer some risk mitigation, such as buffered (ETFs), or fixed indexed or registered index-linked annuities (RILAs) with buffers, may also be considered.

As you get older, you should try more to manage risk in your portfolio. Often these buffered products are a good compromise between a fixed asset investment that is unlikely to keep up with inflation and investments in something like stocks, which have inherent risks or are subject to volatility. Discuss your options with your financial advisor to find a balance between the need for growth and your ability or willingness to accept a certain level of risk.

make more money

Between dwindling savings and record inflation, you may just need to make more money to get your financial strategy right. Sometimes the only way to save more is to earn more.

Now might be the time to ask for a raise or look for a new, better-paying job. The job market is in your favor with companies fighting to attract and retain talent. The study also found that 53% of non-retired people had or expected to find a job that pays more money because of the rising cost of living, so you’re not alone if you find yourself in this camp.

Use your increased earnings to increase your savings. Of course, this means you can spend more elsewhere as well. Keep in mind that lifestyle flu will compromise your future goals.

Make a long-term plan and consult a professional

Creating a long-term financial plan will help you think in detail about what you want those 20 to 30 years of retirement to look like. Most importantly, it must be written down. Having a plan in your head doesn’t work. While there is software online that can help, you really need to work with a professional who will create a plan for you.

This takes work and that’s why many people don’t do it. However, after you put in the initial effort, your plan is invaluable that you can reference, adapt, and take comfort in as you make your way to and through retirement.

A well-written plan also considers risks to that ideal future in retirement. Risks such as volatility, inflation, and longevity all threaten those plans. You can incorporate financial strategies that can mitigate these risks.

Creating this document will determine strategies that will help you prepare to achieve the retirement lifestyle you deserve. Your actions will now determine how you will secure those retirement goals. There is no one-size-fits-all financial plan. These tips fall into the “fits most” category. Your financial situation would benefit from the detailed help of a professional.

*Allianz Life Insurance Company of North America conducted an online survey in February 2022, the 2022 Retirement Risk Readiness Study, with a nationally representative sample of 1,000 people aged 25 and older in the contiguous US with an annual household income of $50k+ ( single) / $75k+ (married/partnered) OR $150,000 investable assets.

This content is for general educational purposes only. However, it is not intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or scheme. Please note that Allianz Life Insurance Company of North America, its affiliates and their agents and employees do not provide fiduciary, tax or legal advice. Clients are encouraged to consult their tax advisor or attorney for their specific situation
Allianz does not provide financial planning services.
Registered Index Linked Annuities are subject to investment risks, including possible loss of principal. Investment returns and principal will fluctuate with market conditions so units may be worth more or less than their original cost when distributed.
Investing involves risks, including possible loss of principal. There is no guarantee that the funds will achieve their investment objectives and may not be suitable for all investors.
Warranties are backed by the financial strength and ability of the issuing insurance company to pay claims. Variable annuity guarantees do not apply to the performance of the variable sub-accounts, which will fluctuate with market conditions.
Products are issued by Allianz Life Insurance Company of North America. Variable products are distributed by its subsidiary, Allianz Life Financial Services, LLC, Member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427 www.allianzlife.com

Vice President, Advanced Markets, Allianz Life

Kelly LaVigne is vice president of advanced markets for Allianz Life Insurance Co., where he is responsible for developing programs that help finance professionals serve clients with retirement, wealth planning and tax-related strategies.

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