Financial Disruptions Cost Americans $2.5 Trillion in Lost Retirement Savings
Major health issues. Unemployment. Divorce. Even buying a house. These are all major life events that can disrupt long-term savings and investing strategies and negatively impact retirement plans. When Americans experience a disruption to their financial plan, it can have a significant impact on the amount they can put away each month for retirement or even to prepare for the next disruption. TD Ameritrade’s 2015 Financial Disruptions Survey explores the impact these life events can have on the average American’s long-term savings habits, reveals a frightening economic hit and uncovers lessons learned.
The Economic Impact
- Two-thirds (66 percent) of Americans surveyed have seen their long-term and retirement plans disrupted (“Disrupted Americans”)
- There is an opportunity cost to disruptions. Financial disruptions cost Americans $2.5 trillion in lost long-term and retirement savings1
- A loss of employment or having to take a lower-paying job is the most common disruption
Life Before the Disruption
- 84 percent of “Disrupted Americans” were saving for retirement prior to the disruption; the average “Disrupted American” was saving over $500/month
- 40 percent of “Disrupted Americans” felt that having a steady income meant that they were prepared for a disruptive event
- Prior to the disruption, “Disrupted Americans” were most likely to discuss their financial plans with a spouse or partner
Life During the Disruption
- 79 percent of “Disrupted Americans” had to reduce their savings and/or expenditures during the disruption, and, on average, reduced their retirement savings by almost $300/month
- 50 percent of “Disrupted Americans” needed to withdraw money from savings or borrow funds
- Decreasing expenditures, using less credit and repaying debt are the most likely changes made by “Disrupted Americans” in order to recover financially
Tips on Staying Retirement-Ready
“Every human being faces the threat of a financial disruption because there will always be external factors that can upset the course of a person’s life. The key is to have a financial plan that incorporates risk management because no one knows when these disruptions can occur,” said Lule Demmissie, Managing Director of Retirement at TD Ameritrade. “Saving and planning for our retirement does not guarantee we will be 100 percent protected from disruptions, but what it can do is help shelter us from the unexpected and give us a stronger footing in adjusting after a disruption. In retirement planning time can be an asset or a liability. The earlier we start the better- the key is to start.”
On average, “Disrupted Americans” who are back on track with their long-term retirement goals took almost five years to get there (four years, eight months). Yet, half of those disrupted (49 percent) will need to delay retirement, or forego it completely. With the benefit of hindsight, “Disrupted Americans” said they would have saved a greater proportion of their income (44 percent), started saving or investing earlier for retirement (36 percent) and 26 percent said they wished they had been more educated about long-term savings and investing. According to a recent TD Ameritrade survey of retired baby boomers, those who successfully prepared for retirement said the top five things that contributed to their success were:
1. Limiting use of credit (67%)
2. Saving early and consistently (58%)
3. Spending less on luxuries/discretionary items (58%)
4. Having employment with an excellent salary (56%)
5. Investing in/maintaining a well-balanced portfolio (51%)
“A retirement plan is adjustable and should evolve over time, so self-directed investors are in a better position to more easily take a hands-on approach to their retirement and investing strategies,” said Demmissie. “While no one can predict when, or if, a financial disruption will occur, the key is to focus on what can be controlled. Understanding ones retirement goals, regularly evaluating your portfolio and being prepared to make adjustments to your long-term strategy along the way can help you pursue your retirement plan.”
“Disrupted Americans” interested in getting back on track for retirement are encouraged to visit TD Ameritrade’s Retirement Planning Page, which offers a number of retirement planning resources that can help investors pursue their goals.
The survey findings can also be seen in an infographic by visiting www.AMTD.com.
For the latest news and information about TD Ameritrade, follow the Company on Twitter, @TDAmeritradePR.
1: $2.5 trillion loss estimated as follows: On average, a survey respondent experiencing a disruptive event will save almost $300 less per month for a period of almost five years, meaning their savings pot will be $16,000 less than it otherwise would have been. Two-thirds (66%) of survey respondents (or 158 million Disrupted Americans out of a possible 240 million U.S. adults2) experienced these sorts of disruptions over the course of their lives, translating to a National loss of $2.5 trillion.
2: US Census Bureau, US adult population of 240 million, 2013 estimate http://quickfacts.census.gov/qfd/states/00000.html
About TD Ameritrade Holding Corporation
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Source: TD Ameritrade Holding Corporation
About Head Research
Head Research is a division of Head Solutions Group (U.S.) Inc., a leading market research partner for Financial Services companies in North America. With offices in New York, Toronto and Montreal, Head delivers the deep customer insights that increase institutional knowledge and propel business action. TD Ameritrade and Head Research are separate and unaffiliated firms and are not responsible for each other’s services or policies.
About the 2015 Retirement Survey Methodology
An online survey was conducted with 2,019 U.S.-based adults who had experienced an event or situation that had an effect on their financial plans for the long-term/retirement by Head Research, on behalf of TD Ameritrade, Inc. Sample was drawn from major regions in proportion to the U.S. Census. The statistical margin of error for the total sample of N=2,019 adults within the target group is +/- 2.2% (assuming that participants are the same as non-participants). This means that, in 19 out of 20 cases, survey results will differ by no more than 2.2 percentage points in either direction from what would have been obtained from the opinions of all target group members in the U.S.
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