“With competing priorities, it's very difficult to save as much as we ultimately want to save,” Ceder said in a recent Decoding Retirement podcast (see video above or listen below).
As a result, a significant number of Americans believe they will need to delay retirement.
Although the adverse effects of the “financial vortex” are on the decline (see chart below), the competing demands on people's finances, from monthly expenses and financial hardships to the rising costs of caregiving, make it challenging to prioritize saving for the future.
Working longer, however, is not always the best backup plan, according to Ceder. Over the past several years, the Goldman Sachs Retirement Survey and Insights Report, which served as the basis for the conversation with Ceder, showed that 50% of people end up retiring earlier than they had planned.
"People think that they're going to be able to work longer to shore up their finances, but the reality is if you have to retire earlier, that has a really significant impact on your ultimate retirement savings," he said.
Those saving for retirement can do more to avoid that break-glass action plan of having to work longer.
Developing a personalized retirement plan is the best solution, according to Goldman Sachs' survey results.
"When we looked at this, it was really the magnitude of all the different ways that the planning aspect helped,” Ceder said. “We actually asked people a fairly basic question: Do you have a personalized plan that tells you how much you need to save for retirement and how to save and invest to reach 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 delays. This highlights the significant benefits of having a personalized retirement plan.”
Some workers don’t have access to the planning resources and tools that can help them get on the right track. But that’s what workers want most from their employers.
According to the Goldman Sachs report, retirement savings and investing advice are consistently valued by all investor types, from do-it-yourself and passive investors to advice-reliant investors.
California state worker Curtis Walker looks over retirement plan brochures at the Calpers regional office in Sacramento, Calif., on Oct. 21, 2009. (REUTERS/Max Whittaker) ·REUTERS / Reuters
For those who have access to planning resources and tools, Ceder said it’s a matter of making sure the plans account for a worker’s unique circumstances. How do we factor in the various aspects of an individual's life? For example, do they have a spouse, other assets, or family members they’re responsible for? All of these elements play a role, according to Ceder.
Ceder also mentioned that creating a plan is not a one-and-done exercise.
If you're 25, starting with a basic plan might make sense. But as you move into the peak of your career, juggle family responsibilities, or find yourself in the sandwich generation caring for both children and aging relatives, it becomes crucial for that plan to adapt and grow with your changing circumstances.
“What's most important, in my mind, is having that planning mentality,” Ceder said. “I almost view it as a behavior that really will sort of evolve and grow as your life changes, but always keep an eye toward what you need to do for the future.”
Ceder noted that 401(k) plan sponsors often lack a comprehensive, 360-degree understanding of the worker’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 to what they know,” he said. “They basically know the account that [they] have access to.”
Ceder said workers ought to learn more about alternative investment options, such as private equity, private credit, private real estate, and managed accounts.
There’s a growing focus on personalization and diversification, he said, noting that target-date funds are helpful, but they’re designed for averages. Ceder explained that alternative investments and managed accounts align portfolios more closely with individual needs, which can help maximize returns and alleviate savings pressures.
For some, a target-date fund may suffice if their financial trajectory is on track. However, “if they're off track, if they're behind, maybe [they] need a more personalized solution to help get them to be on track.”
The rule of thumb, Ceder said, is that an individual saves 15% from age 25 to 65, and that, plus investment returns, is what gets you sufficient savings for retirement. But earning an additional 50% return on a multi-asset portfolio is essentially equivalent to saving 1%, he said.
“This highlights the importance of plan sponsors and advisers doing more to create portfolios designed for the long term,” Ceder said. “We know there's a need to help reduce some of the pressure on the savings side."
Technology will continue to play a large role in helping workers save for retirement. Digital tools can ensure everyone has access to quality service, allowing advisers to step in for unique scenarios.
And artificial intelligence may be able to help plan participants understand their investment options or answer questions. However, current regulations make it difficult to determine if AI can be used to provide financial advice to 401(k) participants, Ceder said.
Some firms are moving in the direction of offering services that capture a worker’s complete financial picture. But that’s the “holy grail of retirement,” Ceder said. It’s the challenge firms are working to address.
