41% of GenXers say they think it will “take a miracle“ to have a secure retirement.
A large swath of the GenX population, many of whom are 20 years or less from the end of their working careers, say they don’t think they are going to be financially ready for their golden years. 41% of them agreed with the statement that “given certain challenges, it’s going to take a miracle to retire securely,’’ according to the 2021 Natixis Global Retirement Index.1Natixis identified four main concerns leading to feelings of doubt and insecurity:
- Low interest rates which may make it difficult to generate income (dive deeper with Horizon Investments’ Focus magazine article: Crushed by Zero)
- Rising inflation which may erode purchasing power
- Ballooning government debt that may force a reduction in future retirement benefits (dive deeper with Horizon’s Big Number: Americans Seek Advice Amid Social Security’s Financial Stress)
- Rising cost of healthcare and long-term care (dive deeper with Horizon’s Big Number: Long-Term Care Costs as Much as a New Porsche Sports Car)
The worries are understandable. However, some people may react with despair or lethargy rather than attempting to take some measure of control by saving and investing.
That may partially explain why roughly 25% of GenXers have nothing saved for retirement, according to the Insured Retirement Institute’s 2021 retirement readiness report.
Horizon Investments believes it’s possible to be financially prepared for retirement, and that goals-based financial planning and goals-based investment strategies can help pave the way.
Building a credible plan to reach a defined goal can tap into the important behavioral habit of mental accounting, where someone is actively earmarking money towards their goal.
A recent study found that having professional financial advice led to more people knowing what their target is for retirement. 73% of clients who work with an advisor said they have an estimate of what they’ll need for retirement versus 45% of those who are going it alone, according to DALBAR, Inc.
As a goals-based investment manager, Horizon believes that time determines the changing investment risks someone encounters as they follow a goals-based plan. For those nearing retirement, they are likely in the protection stage, where catastrophic loss is the key risk given that there may be too little time to recover from a severe market event.
(Read Horizon’s Redefining Risk paper to understand our goals-based investing philosophy)
Horizon’s Risk Assist® strategy is designed for the protection stage. It aims to capture the market’s gains should the rally continue, and provide a sense of reassurance that the portfolio can mitigate drawdown risk.
The Risk Assist® algorithm is formulated to capture daily returns under normal market conditions, with an automated “ratcheting” function designed to raise the loss tolerance threshold when the portfolio reaches a predetermined higher value. When market conditions severely deteriorate, Risk Assist® is designed to turn “on” and systematically de-risk the portfolio. It uses the same systematic process to “re-risk” the portfolio as conditions improve.
Horizon’s goal is simple: empower advisors to help clients achieve their objectives by reducing the behavioral mistakes that can lead to doubts about financial security.
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1Natixis Investment Managers, https://www.im.natixis.com/us/research/2021-global-retirement-index
2 Insured Retirement Institute, https://www.myirionline.org/docs/default-source/default-document-library/iri-retirement-readiness-2021_fullreport.pdf
3 Dalbar.com, “The 3 Fundamental Questions of Retirement Planning,” https://www.dalbar.com/blog/read/693928f0-27cf-4f4a-912c-5766b66de677
This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, contact Chief Investment Officer Scott Ladner at 704-919-3602 or firstname.lastname@example.org.
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