“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 the 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 waning (see chart below), the competing demands on people's finances, from monthly expenses and financial hardship to the rising costs of caring, 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 few years, the Goldman Sachs Retirement Survey and Insight Reportwhich was the basis of the conversation with Ceder, showing that 50% of people end up retiring sooner than they had planned.
“People think they are going to be able to work longer to improve their finances, but the reality is that if you have to retire earlier, that has a very significant impact on your retirement savings in eventually,” he said.
Those saving for retirement can do more to avoid that broken glass action plan of having to work longer.
Developing a personal retirement plan is the best solution, according to the results of a Goldman Sachs survey.
“When we looked at this, that was the extent of all the different ways that the planning aspect had helped,” Ceder said. 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 a better ability to balance competing priorities – all of which allowed them to reach retirement without delay. This highlights the significant benefits of having a personal retirement plan.”
Some employees do not have access to the resources and planning tools that can help them stay on track. But that's what employees want most from their employers.
According to a Goldman Sachs report, retirement savings and investment advice are consistently valued by all types of investors, from do-it-yourself and passive investors to those who rely on advice.
California state worker Curtis Walker looks over retirement plan brochures at the Calpers regional office in Sacramento, Calif., on October 21, 2009. (REUTERS/Max Whittaker) ·REUTERS / Reuters
For those who have access to planning resources and tools, Ceder said it is a matter of ensuring that the plans account for a worker's unique circumstances. How do we consider the various aspects of an individual's life? For example, do they have a spouse, other assets, or family members they are 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 pinnacle of your career, juggle family responsibilities, or find yourself in the middle generation caring for children and aging relatives, it becomes essential that that plan adapts and grows with you changing circumstances.
“What's most important, in my mind, is to have that planning mindset,” Ceder said. “I almost see it as a behavior that will evolve and grow as your life changes, but always keep an eye on what you need to do for the future.”
Ceder noted that 401(k) plan sponsors often lack a comprehensive, 360-degree understanding of the employee'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 in what they know,” he said. “Basically they know the account they (have) access to.”
Ceder said employees should learn more about alternative investment options, such as private equity, private credit, private real estate, and managed accounts.
There is a growing focus on personalization and diversification, he says, noting that target date funds are useful, but they are designed for averages. Ceder explained that alternative investments and managed accounts align portfolios more closely with individual needs, which can help maximize returns and ease savings pressure.
For some, a target date fund may be enough if their financial trajectory is on track. However, “if they're off track, if they're behind, maybe (they) need a more personalized answer to help them get on track.”
The general rule, says Ceder, is that an individual saves 15% from age 25 to 65, and that, together with returns on investments, is enough savings for retirement. But earning an extra 50% return on a multi-asset portfolio is essentially equivalent to saving 1%, he says.
“This highlights the importance of plan sponsors and advisers doing more to create portfolios that are designed for the long term,” said Ceder. “We know there is a need to help reduce some of the pressure on the savings side.”
Technology will continue to play a major role in helping workers save for retirement. Digital tools can ensure that everyone has access to a 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 whether AI can be used to provide financial advice to 401(k) participants, Ceder said.
Some companies are moving in the direction of offering services that capture an employee's complete financial picture. But that's the “holy grail of retirement,” says Ceder. That is the challenge that companies are working to address.
