What Are the Real and Perceived Threats to Your Financial Security? What Can You Control?

Inflation, interest rates, the war in Ukraine, energy prices, deficits, taxes, insurance costs, bear markets, recession, housing crash, housing crunch, income disparity, weak global economy, and the list of economic woes goes on and on – nevermind your own competing priorities of kids, housing, savings, and aging parents. But, what are the real threats to your financial security? And, more importantly, what can you actually control or do about the economic issues that worry you the most?

Keep reading to explore how you can protect your money and security.

Goldman Sachs’ Retirement Readiness & Insights Report 2022 outlines the hardships that most concern people approaching retirement and already retired.

Here are some of the biggest threats to financial security

Inflation

The number of people who are worried about inflation has jumped from 42% in 2021 to 71% today.

Rising costs do indeed put a real damper on your financial security. As such, you want to ensure as much inflation-protected income for your retirement as possible. Actually, striving to cover 100% of your mandatory fixed expenses with inflation-protected income is a good goal.

Social Security, some pensions, and some annuities are inflation-protected. And, if your investments earn a rate of return that exceeds the inflation rate, your withdrawals could also be considered inflation protected.

Use the NewRetirement Planner to assess your inflation-protected income sources. The lifetime income projections chart enables you to see your different sources of income. You can also use the detailed Budgeter (Expenses > Recurring Expenses > Planner+ Budgeter) to define your necessary and flexible spending needs, then toggle between the two different budgets to assess your plan at different spending levels.

NOTE: The top way most households are dealing with inflation is to reduce or control spending. With the job market still strong, working longer or getting a retirement job may become a bigger trend.

By most meaningful metrics, living a long life is the goal. However, a longer life requires more money and a better plan.

Use the NewRetirement Planner to assess your chance of success and out-of-money age at different longevity targets. We generally recommend that you plan for at least your expected longevity plus 10 years to act as a margin of fortuitous error.

Try one of the 10 best life expectancy calculators and plan for a long life of financial security.

Even if you are already retired, you can probably get by in the short term with inflation at near-record highs, but the real question is: Will you run out of money in the future?

The NewRetirement Planner can help you answer this question. You can explore your “chance of success” score or evaluate your out-of-money age. And, you can explore these metrics using different worst-case and best-case scenarios.

Develop contingency plans like spending less, downsizing your residence, or getting a retirement job for your worst case scenarios.

The Goldman Sachs report refers to the myriad financial priorities, life events, and planning assumptions, which often impact a working individual’s ability to contribute to their retirement savings as the “financial vortex.” Starting in mid-life, the financial pressure mounts as people juggle very real spending needs. And, the study finds that these competing financial needs put retirement savings at risk.

However, most experts recommend that households prioritize retirement savings over most other competing priorities. Your child can get a student loan and your aging parents can opt into Medicaid but no one else is going to fund your retirement.

If you are faced with your own financial vortex, consider using the NewRetirement Planner to run scenarios with different spending levels representing the various pulls on your income at different time periods in your life.

Assess what feels right to you and see what you can actually afford.

It is commonly suggested that 70% of your pre-retirement income is needed to maintain your standard of living in retirement. But the Goldman Sachs survey found that only 25% reach retirement and receive at least 70% pre-retirement income and more than half (51%) receive less than 50% of their pre-retirement income.

The numbers suggest that the majority of retirees are living below the lifestyle they enjoyed during their working years.

The lifetime income projection chart in the NewRetirement Planner can help you visualize your income and desired spending over your lifetime. It is a good idea to view this chart with different best-case and worst-case scenarios. How do your spending and income look at:

• Sustained high inflation levels?
• Low investment returns?
• High and low levels of spending?

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple aged 65 in 2022 may need approximately $315,000 saved (after tax) to cover health care expenses in retirement.

These are out-of-pocket expenses not covered by Medicare and do not even include the potential costs of a long-term care need.

You can get a personalized estimate of your healthcare costs in the NewRetirement Planner and try out different ways of planning for long-term care costs.

The Goldman Sachs study suggests that very few people are actually concerned about how their spouse will fare after they have gone. And, earlier research finds that the majority of married couples plan retirement on their own, without consulting their partner.

This is a mistake. Households need their income to last for all concerned parties. The NewRetirement Planner is one of the few online tools that fully accounts for all aspects of a spouse’s current and financial picture.

Almost half of the people surveyed by Goldman Sachs are worried that there will be reductions to future Social Security benefits.

While it is highly unlikely that the government would reduce benefits to anyone already receiving them or set to start them soon, both Social and Medicare are in financial trouble. And, there is talk in Washington D.C. of possibly raising the start-age for benefits, reducing benefits for people earning certain amounts, or otherwise addressing the fact that these programs will be insolvent.

It may be important for younger workers to take even more responsibility for their future financial security by saving more.

With any stressful situation, it is important for you to focus on what you can control. You can’t change the global economy, but you can determine what you spend and, to some degree, what you earn and save.

Reducing spending and working longer or getting a retirement job are activities that many households are considering now. These are relatively simple and highly effective strategies for addressing economic hardships.

Optimizing your savings, investments, taxes, and insurance are more sophisticated and viable strategies for improving your financial security as well.