High-inflation, economic uncertainty, and concerns about Social Security remain top of mind for consumers, particularly as they relate to retirement planning, according to the results of the second installment of the Security Retirement Series of studies from Jackson National Life Insurance Co. in Lansing.
The most recent study, in partnership with the Center for Retirement Research at Boston College, also polled financial professionals about how they perceive inflation risk and the associated impacts on retirement income planning.
The Jackson research shows more than half of consumers surveyed are more pessimistic about their financial security outlook now than they were in 2021, with nearly 30 percent being “much more pessimistic” after experiencing a peak inflationary environment in 2022. Concerns of inflation affect not only consumers’ and financial professionals’ attitudes, but also their behaviors around lifestyle, buying habits, and investment portfolios.
Additional findings from the research include:
- More than half of consumers surveyed were unclear about current rates of inflation. This cohort of consumers reported inaccurate rates or indicated they could not make an estimate of inflation rates. These findings indicate a low level of awareness and a high level of uncertainty among respondents.
- Overall, predictions for future rates of inflation vary among financial professionals and consumers. Research found 26 percent of consumers believe inflation rates will exceed 5 percent in the next few years, compared to only 8 percent of financial professionals.
- Diversification ranked highest as a specific method used by financial professionals to fight against inflation risk in their clients’ portfolios. Additionally — in 2023, 42 percent of the financial professionals surveyed recommended an increased asset allocation to annuities with guarantees, up noticeably from the 32 percent who did so from the start of 2021 until the end of 2022.
- Consumers whose financial professionals suggested inflationary mitigation strategies lost less of their purchasing power than others. Consumers working with a financial professional lost an average of 2 percent of their purchasing power over the preceding 12 months due to inflation, while those not working with a financial professional lost twice as much – an average of 4 percent.
- Pre-retirees surveyed indicated they feel the impacts of inflation more than retirees. Forty-one percent of pre-retirees reported a negative impact from high interest rates on their household finances, while only 29 percent of retirees reported the same effect.
- The research shows that much of how people feel about inflation and the broader economy relates to where they get their news. Reliance on certain news sources can reflect levels of economic optimism or pessimism based on the bias of the media outlet.
“Understanding how inflation impacts our economic environment is critical to financial planning, and we’re seeing that, to varying degrees, consumers and financial professionals are either unsure or simply getting it wrong,” says Glen Franklin, assistant vice president of research, RIA, and lead generation strategy for Jackson National Life Distributors, the marketing and distribution business of Jackson.
“While inflation risk is important to comprehend and manage throughout the retirement process, misunderstanding the effects can lead to either over- or under-spending retirement savings. It can also significantly impact saving before retirement begins. Our findings suggest there is a strong opportunity for more financial professionals to actively address clients’ concerns, and that consumers clearly benefit from such guidance in modifying their investments.”
According to Jackson, the study highlights comprehensive academic research focused on four key areas: the effects of inflation on financial outlook and results; perceptions about inflation and Social Security by retirement status; inflation and gender decision-making roles; and economic optimism and the role of news sources.
“Inflation was not on our radar for several decades, but it came back front and center after the post-pandemic spike in prices,” says Alicia Munnell, professor of management sciences at the Carroll School of Management and director of the Center for Retirement Research at Boston College. “High inflation has real impacts on financial security in retirement. While many households did offset the short-term pain by tapping assets and cutting back on saving, such actions will mean less consumption in the future.”
The research, fielded between June 12-Oct. 27, 2023, included online surveys of 400 financial professionals and more than 1,500 consumers, including both pre-retirees and currently retired, between 55 and 85 years of age. Respondents were required to participate in, or lead, household financial decision-making.
Part one of Jackson’s Security in Retirement Series focused on longevity risk, or the risk of outliving income. Future studies will explore and analyze a selection of critical risks impacting Americans’ security in retirement, such as health care, market dynamics and policy risk related to government programs.
To access details and up-to-date findings relative to this research as well as other proprietary research materials developed by Jackson, are available here.
