New data released by AARP shows that most Americans are delaying or canceling their retirement plans, with many also taking on extra work on the side. Americans’ retirement plans could face further disruption in 2023 because retirement accounts may be exposed to increased market volatility.
Retirement concerns are high, even for millionaires.
A February 4, 2023, article by Barron’s reports that costs such as long-term care and credit card debt can burn through more money than retirees initially had planned for. Stacy Francis, certified financial planner and president & CEO of Francis Financial, told Barron’s, “The majority of individuals aren’t going into retirement with enough assets.”
A survey by Natixis Investment Managers found that 35% of millionaires say it is “going to take a miracle” to retire comfortably. Additionally, survey results by Gallup show that 50% of Americans say they are financially worse off than the year before.
Pensions and other retirement options may be falling short of Americans’ retirement needs.
Unfunded liabilities in U.S. state and local pensions funds—money pensions owe that they do not have—climbed to $1.45 trillion in 2022. Bloomberg reports, “Surging inflation, rising interest rates and growing concern about a recession hammered equity and bond markets” in 2022, which shrank the assets held by pensions.
401(k) accounts have also experienced negative growth. A report released by Fidelity shows that the average 401(k) balance fell 23% from November 2021 to November 2022. In addition, the average individual retirement account balance also plunged 25% year-over-year.
2023 is expected to see continued market volatility, which may further impact retirement accounts.
Morgan Stanley said in a note to clients on February 6, 2023, that an earnings recession is still set to be a major obstacle to any gains this year. Strategists at the firm noted that indicators of earnings per share (EPS) growth in the S&P 500 turned negative on February 2, 2023, saying, “Historically, the majority of the price downside in equities comes after forward EPS growth goes negative.”
Strategist David Rosenberg, president of Toronto-based Rosenberg Research & Associates Inc. and former chief North American economist at Merrill Lynch, expects stocks to fall 30% in 2023. In an interview with MarketWatch, Rosenberg said, “The recession’s just starting. The market bottoms typically in the sixth or seventh inning of the recession, deep into the [Federal Reserve] easing cycle.”
Retirement accounts may already be underperforming, and 2023’s expected economic volatility may lead many Americans to reevaluate their retirement plans.
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