How to overcome the ‘financial vortex’ to save for retirement

By Investor Empires On Dec 28, 2024

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For many Americans, retirement planning often seems unrealistic.

Instead of focusing on the future, many are preoccupied with the what Chris Sider is a senior retirement strategist at Goldman Sachs Asset Managementreferred to as the “financial spiral” – the relentless daily financial issues that overshadow long-term planning.

“With competing priorities, it’s very difficult to save as much as we ultimately want to save,” Seder said on a recent Retirement Decoding podcast (see the video above or listen below).

As a result, a large number of Americans believe they will need to delay retirement.

Although the negative effects of the “financial spiral” are declining (see chart below), competing demands on people’s finances, from monthly expenses and financial hardship to the rising costs of caregiving, make it difficult to prioritize saving for the future.

However, working longer isn’t always the best backup plan, according to Seder. Over the past few years, Goldman Sachs Retirement Survey and Insights Reportwhich served as the basis for the conversation with SEDRE, showed that 50% of people end up retiring earlier than they planned.

“People think they’ll be able to work longer to shore up their finances, but the reality is that if you have to retire early, it has a really big impact on your ultimate retirement savings,” he said.

Those saving for retirement can do more to avoid the difficult plan of having to work longer.

Developing a personal retirement plan is the best solution, according to Goldman Sachs survey results.

“When we looked at this, it was just the scale of all the different ways the planning aspect helped,” Seder said. “We actually asked people a fairly basic question: Do you have a customized plan that tells you how much you need to save for retirement and how to save and invest to get to that goal?”

He said the results were clear. “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 delay. This highlights the significant benefits of having a personal retirement plan.”

Read more: Retirement Planning: A Step-by-Step Guide

Some workers don’t have access to planning resources and tools that can help them get on track. But this is what workers want more than employers.

According to a Goldman Sachs report, retirement savings and investment advice are consistently valued by all types of investors, from do-it-yourselfers and passive investors to advice-based investors.

California state employee Curtis Walker reviews retirement plan brochures at the Calpers regional office in Sacramento, California, on October 21, 2009. (Reuters/Max Whitaker) · Reuters/Reuters

For those who have access to planning resources and tools, Sider said it’s about making sure plans take into account a worker’s unique circumstances. How do we deal with various aspects of an individual’s life? For example, do they have a spouse, other assets or family members that they are responsible for? All of these elements play a role, according to Sider.

Seder also mentioned that creating a plan is not a solo exercise.

If you’re 25, starting with a basic plan might make sense. But as you move to the peak of your career, juggle family responsibilities, or find yourself in the sandwich generation caring for children and elderly relatives, it becomes essential for this plan to adapt and grow with your changing circumstances.

“The most important thing, in my opinion, is having a planning mentality,” Seder said. “I view it as a behavior that will really evolve and grow as your life changes, but always keep an eye on what you need to do for the future.”

Seder noted that 401(k) plan sponsors often lack a comprehensive, 360-degree understanding of a worker’s overall financial situation — such as additional assets, accounts, liabilities and related factors — beyond basic details.

“401(k) plans, as great as they are, are generally limited to what they know,” he said. “They basically know which account they have access to.”

Seder said workers should learn more about alternative investment options, such as private equity, private credit, private real estate, and managed accounts.

There is an increasing emphasis on allocation and diversification, he said, noting that target-date funds are useful, but they are designed for averages. Seder explained that alternative investments and managed accounts align investment portfolios more closely with individual needs, which can help maximize returns and relieve saving pressures.

For some, funding at the target date may be enough if their financial trajectory is on track. However, “if they’re off track, if they’re falling behind, maybe they need a more personalized solution to help them get on track.”

Read more: 401(k) vs. IRA: Differences and How to Choose the Right Option for You

The rule of thumb is that an individual saves 15% from age 25 to 65, and that, combined with investment returns, is what gives you enough savings for retirement, Sider said. But getting an extra 50% return on a multi-asset portfolio is essentially equivalent to saving 1%, he said.

“This highlights the importance of plan sponsors and advisors doing more to create portfolios designed for the long term,” Sider said. “We know there is a need to help reduce some of the pressures on the savings side.”

Technology will continue to play a big role in helping workers save for retirement. Digital tools can ensure everyone receives high-quality service, allowing advisors to intervene in unique scenarios.

AI may be able to help planning participants understand their investment options or answer questions. However, Sider said current regulations make it difficult to determine whether AI can be used to provide financial advice to 401(k) participants.

Some companies are moving in the direction of offering services that capture a worker’s full financial picture. This is the “Holy Grail of retirement,” Sider said. It’s a challenge that companies are working to address.

Every Tuesday, retirement expert and financial educator Robert Powell gives you the tools to plan for your future Retirement. You can find more episodes on our website Video center Or watch in private Favorite streaming service.

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