Is Your Retirement Facing a Midlife Crisis?

David Blanchett discusses the survey results that reveal a building crisis among near retirees who are unprepared for retirement.

When we hear “midlife crisis,” we usually think of people making drastic changes like buying a sports car or changing careers. But when it comes to retirement, the stakes are even higher. A financial midlife crisis can significantly impact how well you live out your golden years. So, what’s going on? Why is this happening, and more importantly, how can you avoid it?

The Survey that Started It All

My guest on this week’s episode of “Retirement Revealed” is David Blanchett, Managing Director, Portfolio Manager and Head of Retirement Research for PGIM DC Solutions. David shared that a recent survey by Prudential Financial brought this crisis into focus. The results were alarming but not surprising. Many Americans over 55 are feeling financially insecure, and they are beginning to worry if they’ll be able to retire comfortably, if at all. Interestingly, the survey showed that while older adults, like those in their 70s, tend to be more financially stable, those in their mid-50s are caught in a whirlwind of financial uncertainty.

A big part of the problem? These individuals are often feeling squeezed by multiple financial pressures: rising healthcare costs, providing care for aging parents, and often, supporting adult children who haven’t yet gained full financial independence. It’s no wonder that many 55-year-olds feel like they’re in the middle of a financial storm.

A Wish for an Earlier Start

One of the most common things David hears from clients in their mid-50s is, “I wish I had learned about this earlier.” Whether they’re talking about saving more, investing smarter, or working with a financial advisor, the sentiment is always the same: the earlier, the better. Many even express regret for not instilling better financial habits in their own children. David’s research echoes this, showing that those who start financial planning earlier—whether by themselves or with the help of an advisor—tend to feel more secure as they approach retirement.

It’s clear that proactive planning is crucial. But what does that actually mean for someone in their mid-50s? What actions should they be taking?

Caregiving: The Hidden Financial Strain

Another layer of complexity for many midlifers is the role of caregiving. Many people in their 50s are caring for aging parents, while still trying to prepare for their own retirement. In my conversation with David, we discussed the immense financial and emotional strain that caregiving adds to an already challenging situation.

One of my previous podcast guests, Danielle Miller, shared her own experience of providing care for her grandmother while still early in her career. Her story highlights a growing reality: caregiving responsibilities are falling on younger generations, often when they’re least prepared for the financial and emotional demands. What makes it even more challenging is the fact that women are more likely to bear the brunt of caregiving duties. Societal expectations and personal circumstances often leave women shouldering the responsibility, further complicating their financial planning for retirement.

Longevity: The Silent Risk in Retirement

Another major issue facing midlife Americans is the risk of outliving their savings. As David mentioned, many people focus too much on maximizing their income in the short term—getting the most out of Social Security or squeezing as much as possible from a pension. However, the real challenge is making your money last for your entire lifetime, and this is where things get tricky, especially for women.

If you’re part of a couple, it’s often the woman who outlives her spouse. Statistically, women tend to live longer, and this presents unique financial challenges. Traditional pensions, for instance, typically provide only partial payouts to surviving spouses, often cutting benefits by 25 to 50%. Without proper planning, a surviving spouse can face a significant drop in income.

That’s why it’s essential to consider products like joint annuities, which can provide a more secure income stream throughout both spouses’ lives. Right now, in the summer of 2024, the pricing for joint lifetime annuities is quite favorable. These products help mitigate the financial risks of longevity and can provide peace of mind for the surviving spouse.

What Can You Do Now?

If you’re in your mid-50s and feeling the weight of financial uncertainty, you’re not alone. The good news is that there are actionable steps you can take today to improve your financial outlook. David provides some keys to how individuals, financial advisors, and employers can address the midlife retirement crisis:

1. Individuals: The best thing you can do is save more. It may sound simple, but increasing your savings rate, even by a few percentage points, can have a huge impact on your retirement income. Also, make sure to start planning not just for the short term but for your entire lifespan.
2. Financial Advisors: Our job is to help clients focus on what they can control and plan for the long term. This means educating clients on their options and helping them make informed decisions that account for future risks like longevity and market volatility.
3. Employers: Employers can play a significant role in helping their employees prepare for retirement. Offering robust retirement plans and providing financial education in the workplace can make a huge difference in how employees approach their savings and investment strategies.

The Retirement Red Zone

One of the best concepts that came out of Prudential’s research is the “Retirement Red Zone.” This refers to the critical years just before and after retirement when financial decisions are incredibly important. Mistakes made during this period can be costly and difficult to recover from, especially since you only get one shot at some major decisions, like filing for Social Security or choosing a pension payout.

For example, if you retire at 65, you’ve probably had around 1,000 paychecks in your lifetime. Each of those represents a chance to make financial adjustments. But when you file for Social Security or choose a pension option, you may only get one chance to get it right.

As David pointed out, being in the red zone means that every financial decision counts. That’s why it’s crucial to make informed, strategic choices during this time.

Final Thoughts

Navigating the midlife retirement crisis isn’t easy, but with the right planning, it’s entirely possible to come out on top. By taking proactive steps—whether through saving more, working with a financial advisor, or making thoughtful decisions about pensions and annuities—you can ensure a more secure and comfortable retirement.

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Additional Links:

• LinkedIn: David Blanchett
• David Blanchett, PGIM
• “How to Survive the ‘Retirement Red Zone’” – Kristian Finrock, Kiplinger Personal Finance
• “Protect Your Finances: Essential Tips for Family Caregiving with Danielle Miura” – Retirement Revealed Episode 162
• “AEI Social Security Expert Andrew Biggs Explains Why “there is No Retirement Crisis” – https://www.aei.org/press/aei-social-security-expert-andrew-biggs-explains-why-there-is-no-retirement-crisis/

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