Retirees shifting portfolio focus from growth to new target, study finds

Retirees and pre-retirees are changing their investment priorities from growth and higher returns to ones focused on stability and more easily protected assets, says Global Atlantic in the 2024 iteration of its Retirement Outlook Survey.

The study helps gauge investor sentiment and gain insight into their greatest concerns regarding their retirement savings, the economy, and their future financial plans, according to Paula Nelson, head of Strategic Growth, Individual Markets, at Global Atlantic. In particular, Nelson highlighted the amount of market trepidation that has persisted following the COVID-19 pandemic.

Factors such as the federal interest rates of approximately 5.5% as of May 1 have contributed immensely to market worries as investors remain concerned about another potential rate hike. Furthermore, several other factors outlined by the survey have disquieted investors, most notably inflation, which is currently at 3.48%.

Investors 'still feeling the impact' of high interest

“Investors, near retirement, are still feeling the impact of high interest rates and market volatility and are looking for stability and protection when it comes to their assets,” said Nelson. This is indicative of a major shift in retirement planning as retirement is increasingly seen as a transitional period instead of a singular event.

Though the economy has rebounded since its lows in 2020 and 2021, global events such as the wars in Israel and Ukraine and weakening consumer demand in the face of rising prices for basic goods have many still worried that another recession is inevitable. As a result of these worries, many prospective retirees have begun to look for alternatives, such as guaranteed income and principal protection as crucial parts of their financial planning,

“I think current events have certainly created an appreciation for being prepared, having a plan, and regularly talking with a financial professional to accomplish that. The reality is life can be unpredictable; we’ve seen that over the last decade,” explained Nelson. Considering that multiple major recessions have taken place since the turn of the century, it is no surprise that many investors are clinging to secure and predictable assets.

Concerns have more turning to financial advisors

With the memories of the 2008 financial crisis and COVID-19 recession still fresh in the minds of retirement-aged Americans, the idea of being prepared to weather economic turmoil is becoming very attractive for those preparing their retirement funds. Global Alliance cited this as one of the major reasons Americans are increasingly turning to financial advisors for long-term planning.

Additionally, with Americans living longer, there is a risk that people will simply outlive their assets. “People are living longer and need to adjust their financial plans to accommodate longevity,” said Nelson. What were once sound strategies that kept people’s retirement accounts safe are now facing increasing pressure both from turbulent markets and their own lifespans, potentially outlasting their savings.

Another major concern is that the newer generations of retirees are among the first who did not have access to defined benefit pensions. Having been gradually phased out in favor of options like 401ks, pensions that used to provide a modicum of security in one’s retirement are rare. It is estimated that less than 21% of retirees have a pension plan, a number that is increasingly shrinking as more leave the workforce.

Pensions and, to a lesser degree, 401k plans used to provide security and confidence to those saving for their retirement. Now, retirement-aged individuals are increasingly extending their careers beyond 65 and list weakening benefits and uncertain market futures as major reasons why they continue to work past retirement age.

Outliving investments another retiree worry

Alongside inflation and downturns, living a longer life than one’s assets can maintain has become one of the top fears of retirees. However, other factors, such as new technological developments in fields such as AI, have the potential to create new solutions for these issues. “AI will most certainly have an impact in the future of retirement and financial planning,” emphasizes Nelson.

As Nelson put it, “This study shows people want to be protected and in positions to enjoy their retirement years.” Retirees are aggressively looking for new ways to protect their finances and ensure a comfortable and secure retirement, whether through unorthodox methods such as AI use, asset diversification, or reducing their reliance on stock market-based assets.

Performed by Artemis Strategy Group, the study is weighted by region and by age group on gender, race and ethnicity, assets, and education to reflect the population within the given survey parameters. The survey primarily drew from retirement-aged individuals (aged 55-75) with investable assets between $250,000 and $1 million who work with financial professionals.

 

Devin Wilhelm has a master's degree in professional writing and is based out of Hershey, Pa. His main beats are fintech, corporate finance and market research.  Contact him at [email protected].

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