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The Boomer

Retirement chasers and how to catch up on savings goals

By The BoomerFOXBusiness

As we get closer to retirement there is a growing concern among pre retirees that despite having decent retirement savings there may not be enough time to catch up on their savings goals.

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A recent Allianz Life’s Chasing Retirement Study finds that half of retirement savers are “Chasers” who are behind on their retirement goals.

“Although “Chasers” will likely need to be more aggressive in order to catch up on their retirement savings goals, they still need to maintain some focus on protection because they are closer to retirement,” noted Paul Kelash, vice president of Consumer Insights for Allianz Life Insurance Company of North America. 

Kelash discussed with Fox Business these additional findings from the study and what you need to know to play catch up with your retirement portfolio.

Boomer:  How can I catch up on my retirement savings and still maintain some focus on protection as I get closer to retirement?

Kelash:  Investing for retirement is about risk and reward in the context of time horizons. Typically, younger investors take on more risk to reap more rewards because they have a longer time horizon to make up for any losses. As people get closer to retirement, they tend to scale back the risk to focus on safer investments that are less subject to market volatility.  Although this may limit their potential gains, it can provide them with more confidence about their financial security in retirement.

But some people are behind on their retirement savings and don’t feel they have the time to make up for any gaps. According to the Chasing Retirement Study from Allianz Life Insurance Company of North America of Americans age 45-65 actively saving for retirement, nearly half can be identified as “Chasers,” a group that believes they need to catch up on their retirement savings but wants help to understand potential solutions to close their savings gap.

The gap between Chasers and non-Chasers is huge. More than eight in 10 Chasers feel they have fallen behind where they should be in saving for retirement compared to 4% of non-Chasers. The same percentage worry it will be too late for them to have a comfortable retirement if they don’t increase their savings soon, versus just 2% of non-Chasers.

The good news is there are financial products available that allow people to build retirement assets while still maintaining protection for a portion of their portfolio. More than eight in 10 Chasers say they are interested in a financial product that offers growth potential with some protection from loss, and 71% of Chasers are willing to trade off some upside growth potential to have some protection from losses.

Boomer:  I am in my 60’s and still working.  How much should I be investing in my 401K plan?

Kelash:  A good rule of thumb is to invest an amount that will qualify for a full 401K plan company match, if available. This is a fairly simple way to build your assets as it is essentially getting free money from your company.

Also, employees over the age of 50 have the opportunity to make “catch up” contributions to their 401K. In 2018, all employees can defer up to $18,500 in their 401K, but those over 50 may contribute $6,000 more for a total of $24,500 in tax deferred savings.

In addition, it’s important to remember a 401K isn’t the only retirement savings vehicle older workers should consider. This is one area where more confident retirement savers seem to be in a better position than the Chasers who are feeling behind. According to our study, a full 70% of confident savers own an individual retirement account (IRA), more than half own individual stocks, mutual funds and have a pension, and more than a quarter own an annuity. In contrast, only 53% of Chasers have an IRA, and even fewer own individual stocks (35%), mutual funds (35%), have a pension (37%) or own an annuity (14%).

A variety of financial products exist to help save, so discussing options and your overall strategy with a financial professional can help.

Boomer:  Should I still be taking the risk of investing in high risk/high reward financial products?

Kelash:  Investment decisions should be made in the context of each person’s specific financial situation and overall risk tolerance. If individuals find themselves far behind in their retirement savings, a certain amount of risk may be needed in order to catch up. So, the question isn’t necessarily “should I be taking the risk,” but rather “what level of risk” can I tolerate and what financial products can help me achieve my retirement savings goals.

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Although the fastest way to accumulate funds may be to take on more risk, Chasers are not very interested in that approach. The vast majority of Chasers – a full 98% – say they wish they could accumulate funds faster to make up for lost time versus 41% for non-Chasers, but nearly two-thirds of Chasers also say they can’t take the risk of investing in high risk/high reward financial products.

It’s often very challenging to both know your risk tolerance and understand whether your portfolio matches that risk level. A financial professional can help evaluate the risk/reward question.

Boomer:What advantage do I have when working with a financial professional to protect my portfolio?

Kelash:  Financial professionals bring options to grow and protect savings that many people have a hard time finding or understanding if they do find them.

Chasers may be in particular need of financial help to determine the right mix of financial products. Despite having a mean retirement portfolio of more than $400,000, more than half of Chasers say they have too many other expenses right now and one in five say they are saving for other financial goals. As a result, two-thirds of Chasers fear they will run out of money in retirement, and more than six in 10 believe they will need to keep working instead of retiring.

One reason non-Chasers may have more confidence than Chasers centers on whether or not they are working with a financial professional. Only 39% of Chasers are currently working with a financial professional compared to 53% of their more confident non-Chaser counterparts.

Whether you’re a Chaser or non-Chaser, working with a financial professional can help. Understanding stock market and other options for growing assets is often easier than finding financial products that protect those assets. A financial professional can help Chasers and non-Chasers understand how they could take on more risk, yet still have protection in their portfolio.