Good News: Financial Peace of Mind Isn’t About Having a Certain Bank Account Balance
A new study reveals that financial peace of mind in retirement is about more than hitting that $1 million mark.
Even with the coronavirus crisis and corresponding economic downturn, life goes on: People are still buying houses, switching jobs, and otherwise working toward their financial goals, whatever they are. The value people place on different financial and life milestones—buying a house, getting married, having children—varies and some people forgo some or all of these milestones all together, but there is one life stage that’s all but universal: retirement.
While retirement was once thought of as a time to wind-down, it’s now considered an active stage of life, like young adulthood or middle age, with its own new set of opportunities. A new, expansive study from financial services firm Edward Jones and research firm Age Wave surveyed 9,000 people across five generations—Gen Z, Millennial, Gen X, Boomer, and Silent Gen—and found that, with increasing life spans, retirement is less about sitting back and watching the world go by and more about finding new purpose.
“Retirement is far more than a destination or an end point; it’s the beginning of a new journey filled with new twists and turns as well as new possibilities and new questions,” the study report, titled “The Four Pillars of the New Retirement,” reads.
But part of that new journey is financial security: Retirement is best known as the post-career stage of life, where money to live off of comes from savings and social support programs such as Social Security and Medicare. Planning for retirement is on many people’s minds and is a major financial effort, but it easily falls by the wayside, particularly now, when COVID-19 had derailed even the best-laid retirement plans. According to the “Four Pillars” report, those planning to retire feel less confident now about how much they’re saving for retirement than they did before the pandemic—46 percent are confident today versus 58 percent pre-pandemic—and 20 million Americans have stopped making regular retirement savings contributions.
According to the study, 31 percent of Gen Z adults and 32 percent of Millennials have experienced an extremely or very negative impact on their financial security because of the pandemic. Fortunately, these generations have decades to recover their financial security, which will prove a key goal for retirement planning: 46 percent of current U.S. retirees say they want their money to provide security for the unexpected.
There is good news for those with derailed or paused retirement savings plans: Financial security in retirement—and the peace of mind that comes with it—isn’t reliant on a certain bank account balance. For years, $1 million (and other, similarly lofty numbers) has been presented as a goal to work toward for retirement, but the truth is that financial peace of mind in retirement is more complicated than that.
The “Four Pillars” study asked U.S. retirees ages 50-plus how they defined financial peace of mind, and only 34 percent said it was having a certain dollar amount of savings and investments. The most popular definition of financial peace of mind was “knowing I have enough money to live comfortably until the end of my life,” with 74 percent agreement. Other popular definitions include: “knowing I have enough money saved to handle unexpected expenses;” “having no debt;” and “having the freedom to do what I want when I want”—all luxuries people of every age crave, retired or not.
These preferred definitions of financial peace of mind come from current retirees—the study says pre-retirees place more weight on accumulating savings than retirees—but people of any age can learn a few things from them about what their financial goals should look like, namely, that any financial milestone is flexible and should be adapted to suit your lifestyle and current financial situation. “Enough” money is a different amount for everyone: Someone capable of living off very little in retirement doesn’t need a huge retirement account balance; someone planning to live large in retirement will need a much more robust savings plan.
The keys to successful retirement planning—and any sort of financial milestone planning—are to a) plan ahead and b) calculate a personalized goal number or range. More than three-fourths of those planning to retire haven’t calculated how much money they’ll need in retirement, the study reports, which makes savings planning more than a little challenging. Fortunately, working with a financial planner now or later, seeking out educational resources, and taking steps to prepare for the future—even if it’s far-off—can provide financial peace of mind down the line.