Retirement perceptions in the US

While the US continues to rely for the most part on voluntary provision of retirement plans, new federal and state legislation aims to expand access and reduce the coverage gap.

At the federal level, new legislation called the SECURE 2.0 Act of 2022 was signed into law on December 29, 2022 (after our survey responses were collected), as a part of the Consolidated Appropriations Act. Secure 2.0 expands tax incentives for small employers to adopt retirement plans, includes provisions mandating automatic enrollment and automatic escalation for new plans beginning in 2025 and creates a new type of plan called a Starter 401(k) plan available beginning 2024. It also introduces the "saver's match", a tax credit that will be paid into the retirement plans of participants on low incomes. Together, the package of more than 92 provisions represents a strong step toward making retirement plans available to more American workers.

Some states, such as California, Illinois and Oregon, have introduced their own mandates for employers to offer a plan, and these continue to expand. California, for example, expanded its mandate to cover even the smallest employers from July 2022.

We expect retirement plan coverage to continue to increase gradually, but in the absence of a national mandate it will still remain lower than in many other countries.

Healthcare and living costs remain the top concerns

The need to meet basic costs is a big – and growing – concern 

This year’s financial environment has been challenging for retirement savers globally, with rising interest rates, high inflation and falling stock prices. This is likely to have exacerbated savers’ concerns about their ability to meet their retirement spending needs.

Consistent with our 2021 findings, healthcare remains top of the list when it comes to retirement-related concerns, and worry is growing (58%, up from 45% in 2021). This concern jumps to 66% among those closer to retirement, aged 45-54. Being able to afford day-to-day living costs continues to be the next most common concern (57%), jumping 16 percentage points since 2021.

Two in five (43%) people between the ages of 45-54 see their average monthly spend going up in retirement, which could reflect widespread concern about the impact of inflation on day-to-day spending. Men (49%) are more likely to expect their expenses to increase than women (37%). Interestingly, those who are closer to retirement (55+) are less likely to expect their spending to increase. This may be because they have a better understanding of what their spending in retirement is likely to look like. 

Around one in five Americans plan to work into their retirement, with 18% saying that income from continued employment will help fund their retirement. This indicates that retirement is increasingly becoming a transition rather than a one-off event. Compared to other age groups, those aged 45-54 are most likely to say they will rely on social security (63% compared to 60% average) and personal savings (64% compared to 58% average), and least likely to say they will rely on income from continued employment (27% compared to 35% average).

Most Americans understand their retirement options

However, sources of advice do not always meet expectations

Almost four in five (79%) say that they understand their options for financing their retirement. This is up from just 54% in 2021, suggesting that the knowledge gap may be shrinking.

Financial advisers are considered the most useful source of information (32%). They are closely followed by friends and family, with 28% of respondents citing these as the most useful source of information. Unsurprisingly, older participants approaching retirement are most likely to rely on financial advisers, whereas friends and family are the most important source of advice for younger participants.

While 51% of Americans say that they expect to get advice from their retirement plan provider, just 17% say that they receive their most useful advice from their retirement plan provider. Similarly, only 10% mention their employer as their most useful source of advice. This presents an opportunity for service providers to step in with guidance and education. 

People want control and support

Americans are looking for a combination of autonomy and assistance

When it comes to managing their retirement finances, American respondents are looking for a balance of control and support. Only 6% of those aged 55+ want to put the management of their retirement finances solely in the hands of a third party. The majority (59%) want to take a blended approach – they want to manage their own money in retirement, but they also want assistance when doing so. Fewer people (24%) want to manage their finances completely by themselves. This reflects the complexity of retirement planning, given that most Americans feel they have a good understanding of their retirement options. Even with this understanding, they recognise that managing everything on their own can be hard work and complicated.

The desire for complete control is driven by those aged 55 or older: 31% want to manage their retirement finances entirely on their own, compared to just 17% of younger Americans.

When American respondents consider the most important features of a retirement plan, online access comes at the top of the list (66% select it as important). This reflects their desire for autonomy, as well as the legacy of lockdown measures shifting more and more of life online.

Clear and simple communication comes second (57%), and is more important for women (61%) than men (52%) and to older Americans (64%) than their younger counterparts (51%).