Workers vs. Retirees: A Look at How Their Financial Plans and Concerns Are Worlds Apart

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When you retire, you enter a new financial phase of life — so it makes sense that your financial plans and concerns would be different than they were during your time in the working world. A recent Principal survey took a look at just how differently retirees and workers relate to money, and these two groups seem to have very little overlap.

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Here’s a look at the top financial priorities and concerns for these two groups.

The Top Financial Priority for Workers Is To Create a Retirement Income Plan

Above all else, those who haven’t retired want to ensure they will have a source or sources of income once they reach that milestone. The Principal survey found that 37% of workers see this as their top financial priority.

“We see time and again through our research that people of all ages want to have a plan for retirement — but they often don’t know where to start,” said Sri Reddy, SVP, retirement and income solutions at Principal. “Retirement goals and planning are personal. They are also often a moving target depending on where you are in life and your goals.”

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To create a retirement income plan, Reddy said to start by setting a retirement goal.

“Do you envision a traditional retirement when you are 65 and stop working? Do you want to retire earlier? Do you envision — like many younger workers we surveyed — a ‘phased’ retirement in which you continue to work, but perhaps fewer hours in less stressful jobs? First, set your goal,” he said. “If it changes in the future, that’s OK.”

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Next, estimate what you need to do to meet that goal.

“This is where you get down to brass tacks,” Reddy said. “What is your current income? How much are you able to set aside and still meet your daily expenses? Do you have access to an employer-sponsored retirement plan? If not, can you start saving in a Roth IRA for the tax benefits? You can get help with this step through many free tools and resources.”

Finally, make an actual plan — and run it by someone.

“Now that you have your goal and know what you need to do, it’s time to make your retirement plan,” Reddy said. “You can use an Excel spreadsheet. You can use your phone. You can even use a pen and paper! Whatever your style, map out the next 12 months and how you plan to manage your finances to meet your retirement goals. Ideally, you can run this plan by someone. It could be a financial professional (check with your employer if they have resources, as they may be free). Otherwise, turn to a reliable family member or friend who you think is good with their finances. This won’t just help identify any issues with your plan, but it will create accountability beyond yourself.”

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Rounding out the top financial priorities among workers are paying off credit card(s) or other debts (24%) and gaining financial independence (23%).

“We often see financial independence as a key goal for people across age groups and income levels,” Reddy said. “Interestingly, we’ve even seen an increase in interest in financial independence since the pandemic, as people around the world faced unprecedented uncertainty in their work and lives. Financial independence can mean different things for different people. But let’s assume, first, that it means not relying on loans or other interest-carrying vehicles to pay for your daily life now or in the future. Mortgages, car payments, student loans and even credit card debt can all be part of a healthy financial picture. But it’s your ability to pay them off in a timely way while continuing to save for retirement that provides true financial independence.”

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To achieve financial independence, you first have to define your goals and what “financial independence” really means to you.

“Fewer monthly payments? None at all? Putting away enough for an early retirement? Figure out your needs, and then you can start budgeting,” Reddy said.

Next, look at your current expenses and needs.

“Are you paying off debt? What kind of debt is it? From there, you should rank the most expensive debt — such as credit card payments,” Reddy said. “Make a plan to pay off this debt every month. Other debt, like student loans, should still be paid off, but may be lower on the priority list.”

Third, start paying yourself.

“Find a way to put money toward an employer-sponsored retirement plan or your own IRA,” Reddy said. “If you don’t do this, you’ll be leaving money on the table in the long run by missing out on interest growth and tax advantages.”

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The Majority of Retirees Aren’t Working Toward Any Financial Goals

The Principal survey found that the majority of retirees surveyed (30%) say they don’t have any financial priorities they are working on. Among those that do, the most common priority (27%) is paying day-to-day living expenses — and this could be exacerbated by inflation.

“While inflation doesn’t hit all consumer items, it does hit food, gas, and dining out — all areas retirees may be spending on in daily life,” Reddy said. “If a retiree is having trouble meeting basic living needs, the first thing to do is take a look at spending. What could be cut back? Taking public transport as opposed to a car? Cooking at home more? In fact, according to Principal’s recent Super Savers research, nearly half of respondents (45%) are driving older vehicles and not traveling (43%) in order to save more. Consider these options ahead of a more dramatic change such as downsizing living space.”

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If cutting back on spending isn’t enough, retirees should take another look at their savings and withdrawal plan.

“If they are drawing from a workplace retirement plan, what is the distribution? If they increase the withdrawal, would it hinder their long-term planning? Or would that be possible for the next year or so to help them meet expenses?” Reddy said.

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The No. 1 Financial Concern Among Workers Is Not Being Able To Retire When They Want To

Nearly half of the workers surveyed (41%) said they are worried about not being able to retire when they want to — and this concern may be valid.

“Meeting a retirement goal is absolutely a concern,” Reddy said. “As we saw with COVID-19, life can bring unforeseen challenges that can’t be controlled. Nearly half (44%) of people in our Super Savers research said their confidence in having enough saved to live comfortably in retirement has changed over the past year. There is no way to plan for every contingency or obstacle.”

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To feel more secure in their ability to retire, workers need to take advantage of the savings options available to them.

“If you have a workplace retirement plan with a company match, make sure to max it out,” Reddy said. “If you have additional savings you can set aside, are you putting them into a tax-advantaged investment vehicle? If you have a credit card, is it one that gives you cash back? Those are all everyday things you can do. But if you have the savings, one very smart approach is to set up a guaranteed income option such as an annuity. In a world where company pensions are often not possible, you can essentially set up and contribute to your own guaranteed paycheck in retirement. As these options can be complicated, it would be smart to work through your employer or reach out to a financial professional to find the right fit for you.”

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Healthcare Costs Are a Major Concern for Both Workers and Retirees

Although the majority of retirees (53%) said they don’t have any financial concerns, among those that do, 27% said they are worried about healthcare costs. This is one area where workers and retirees are aligned — 29% of workers say they are concerned about healthcare costs for themselves or their loved ones.

“Healthcare costs can be expensive — [they are] often among the biggest expense for retirees,” Reddy said. “But you can control how you set up your finances and insurance to pay for any unforeseen health issues. If you have a high deductible health plan, you may be eligible for a health savings account (HSA) with your employer. A health savings account is a tax-advantaged trust or custodial account that can be invested for the long term and accessed when needed. Currently, most people use HSAs for immediate care needs. However, they are also excellent vehicles for long-term healthcare expenses.”

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Last updated: Oct. 25, 2021 


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