How to avoid a 'financial vortex' in retirement, according to Goldman Sachs

With so many competing financial responsibilities, employees are getting caught in a 'financial vortex,' and it's impacting their ability to save enough for retirement. 

According to Goldman Sachs' 2023 Retirement Survey and Insights Report, competing financial priorities like credit card debt, student loan repayment, college savings and caregiving costs are overwhelming employees' ability to save enough for retirement. As such, 70% say these challenges are impacting their retirement, and 21% of respondents say they will need to delay retirement by at least four years. 

"Retirement savers face a complex backdrop of financial concerns that are both economic in nature but also personal," said Chris Ceder, senior retirement strategist at Goldman Sachs Asset Management, at a webinar exploring the report's findings. "As retirement strategists, we think about: What are the problems that people face? How do we understand the real life challenges that impact how people are going to be able to save and prepare for retirement?" 

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While economic conditions in the market have improved since 2022, financial outlooks are only getting bleaker for employees: Goldman Sachs' data found that 42% stopped saving for retirement in 2023 due to financial hardship, up from 33% in 2022. Thirty-nine percent left the workforce in 2023 because of caregiving responsibilities, up from 22% last year. Those who retired early said it was due to unexpected reasons, pointing to the challenge of addressing financial challenges with the right combination of benefits. 

"A lot of the things in the vortex are unexpected, so having a plan for things that aren't really accounted for is something that we need to continue to think about in plan design," Ceder said. "What we really need is people to understand how to manage their financial lives and how to be more thoughtful about coping and being resilient when those unexpected financial needs arise." 

While employers have prioritized retirement savings and participation in 401(k) plans, and new provisions in SECURE 2.0 are building in emergency savings benefits, overall, these efforts are not enough to address the many unexpected financial challenges that can derail an individual's retirement plans. 

"Most people are not saving enough to meet even half of their pre-retirement income once they leave the workforce," Chris Lyon, head of defined contribution for Goldman Sachs Asset Management, said at the webinar. "There is no one path or solution that solves every retirement concern for all, yet these challenges bring with them opportunities for employers to provide workers and retirees with more integrated, personalized and effective solutions that can help support their retirement goals." 

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Providing greater financial education is critical, as 47% of respondents manage their financial affairs and retirement strategies on their own, according to Goldman Sachs. Financial literacy is also tied to a better ability to manage competing financial priorities, and come up with a plan to manage them. Seventy-nine percent of those with a financial plan feel more ahead of schedule and more confident in their finances, lowering their stress overall, compared to 34% for those without a plan. 

Employers and plan sponsors can assist in these efforts with more focus on how financial challenges are intertwined in an employee's day-to-day life, Ceder said. The Goldman Sachs data found that employees prioritize guaranteed income options and retirement calculators to help them maintain their savings in retirement. Pre-retirement, employees are asking for more immediate support built into their current 401(k) plan design. Emergency savings, financial planning advice and guaranteed income options were all highly valued by survey respondents. 

These benefits address a more holistic financial picture beyond the end goal of retirement, and will help people build financial resilience, an important skill to ensure financial challenges don't tank an employee's entire financial future, Ceder said. 

"How can employers create more of a system to help people navigate different aspects of what's going on in their lives, because the notion of financial resiliency is so important," he said. "It's not necessarily about financial planning, but other types of accounts and resources that can help balance out those moments."