The views presented here do not necessarily represent those of Advisor Perspectives.
A significant number of working-aged Americans are worried they will outlive their retirement savings, according to a recent report by Goldman Sachs Asset Management.
Although nearly 70% of working respondents shared that they were optimistic about reaching their savings goals or felt they were on track, 58% of workers still believed their savings wouldn’t cover their retirement years.
GSAM surveyed more than 5,000 individuals for its report, including 3,588 working individuals across generations and 1,514 retired individuals between ages 45 and 75.
“This fear of outliving assets, often termed longevity risk, is a primary concern for many, highlighting a potential disconnect between current confidence and the long-term sustainability of retirement funds,” the October report said. “Even with positive market conditions and increased account balances, the prospect of a shortfall remains a significant worry for a large segment of the working population.”
U.S. workers, particularly those in the Gen Z and millennial generations, are facing a “financial vortex” of financial pressures that are eating into their savings, including rising debt, housing, healthcare and caregiving costs, the report said.
“The cost of major life events is taking up a larger percentage of household income, a trend that affects workers at the lowest level of income as well as the highest,” Greg Wilson, head of retirement at Goldman Sachs Asset Management, said in a statement for the report’s release. “The ’save more’ strategy may be sufficient for some, but we believe many others will need to more thoughtfully use investment, advice, and retirement income strategies to close their savings gap. Otherwise, retirement may increasingly become unaffordable for too many workers.”
Too Much in Cash
Valerie Rivera, financial planner and founder of FirstGen Wealth, shared that she often sees individuals default to focusing on savings, instead of investing, to reach their retirement goals.
“I tend to see people who are good savers, but don’t translate that to actually investing,” Rivera said in a phone interview. “They are holding too much in cash.”
“There is a fear of making the wrong move, so they don’t make a move at all. If you have too much in cash, you will outlive your money. When I say cash, I think that applies to accounts like CDs. I see that a lot because it tends to feel safe, but it doesn’t keep up with the cost of life,” Rivera said.
“The other mistake I see (among retirement savers) is assuming your income is stagnant. I have worked with people to build up a real plan to work for themselves, and that has provided so much more potential, as opposed to working for certain companies where your potential is capped. But it’s important to do so in a thoughtful way, because you don’t want to give up your day job and not be able to pay personal expenses. This is so they have the flexibility to build their income over time,” she explained.
“It’s about really being strategic in how you increase your income. Are you maximizing where you are? Are you valued where you work and does your income reflect that? If it doesn’t, what do you need to do to get there?” Rivera said.
Pausing Contributions, Pushing Back Retirement
GSAM’s report also found that major life events (such as buying a home, having a child, sending children to college, marriage or divorce) triggered many workers to dip into, or pause, their retirement savings — if not delay their retirement plans altogether.
Among younger workers, 70% said they had either paused retirement contributions, taken out a retirement plan loan or delayed retirement because of expenses related to these life events. Of working (non-retired) respondents, 66% of Gen Z and 59% of millennials experienced at least one major life event in the past two years, according to the report.
Rivera said that it’s rare she’d advocate for someone to consider a 401(k) loan. And in the one instance she has, it was for a client who worked in the government sector — and the loan interest rate was much lower than that of a personal loan.
“It was a strategic move and something short term. And the plan was to pay it back within a year,” Rivera said. “I do tend to see, with people who take out a 401(k) loan, that it’s primarily for buying a home or credit cards connected to an influx of medical debt. Something happened fast and they used credit cards —it’s a snowball [effect] that happens,” she said.
As for pausing or lowering retirement contributions, she’s recommended this option, but primarily in instances when someone is preparing to buy their first home.
It’s usually an instance where “they are going from renting, to all of the things that come with homeownership,” Rivera explained. “The transition is so large that we try to keep things within budget. I want to give people more flexibility, and generally that comes down to having more cash on hand. Sometimes that looks like doing the 401(k) match only. It may just be for a year that we decrease contributions, but with the intention of going back up,” she said.
Strained Finances Across Income Levels
Goldman’s report noted that the cost of retirement is outpacing inflation. However, strained finances are also impacting workers across income levels.
The report revealed that “a meaningful share of higher earners also report living paycheck to paycheck or making only limited progress toward long-term financial goals, underscoring that elevated expenses, debt burdens, and lifestyle inflation can erode savings capacity across the income spectrum.”
Rivera notes that, especially since the pandemic, she’s seen a cultural shift in how much people are spending out of convenience.
“The $5 coffee has turned into the $50 DoorDash,” Rivera said. “I do think that people’s spending is not always in alignment with what their true values are. There’s a lot of flexibility, so let’s be more intentional about that spending. Sometimes there’s a lot of subscriptions, convenience eating, dining out and impulsive travel,” she added.
Danielle Walker is a freelance journalist with 15 years of business reporting experience. She previously worked at Business Insider and Pensions & Investments, among other business publications. Her work has been published in the Financial Times, Barron’s and Chief Investment Officer. Danielle is currently based in Norfolk, Virginia.
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The views presented here do not necessarily represent those of Advisor Perspectives.
