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Study: Consumers are afraid of inflation, the economy and social security

High inflation, economic uncertainty and Social Security concerns remain top of mind for consumers, particularly in the context of retirement planning Lansing, according to results from the second edition of Jackson National Life Insurance Co.’s Security Retirement Series.

The recent study, conducted in collaboration with the Center for Retirement Research at Boston College, also surveyed financial professionals about their perceptions of inflation risk and its impact on retirement income planning.

The Jackson study shows that more than half of consumers surveyed are more pessimistic about their financial security prospects now than they were in 2021, with nearly 30 percent “much more pessimistic” after experiencing a peak in inflation in 2022. Inflation concerns affect not only the attitudes of consumers and financial professionals, but also their behavior in terms of lifestyle, purchasing habits and investment portfolios.

Other research findings include:

  • More than half of consumers surveyed were unclear about current inflation rates. This cohort of consumers reported inaccurate interest rates or said they were unable to estimate inflation rates. These results indicate a low level of awareness and a high level of uncertainty among respondents.
  • Overall, forecasts for future inflation rates vary between financial experts and consumers. Research found that 26 percent of consumers believe the inflation rate will exceed 5 percent in the next few years, compared to just 8 percent of financial professionals.
  • As a specific method that financial professionals use to combat inflation risk in their clients’ portfolios, diversification is at the forefront. Additionally, in 2023, 42 percent of financial professionals surveyed recommended increased asset allocation to guaranteed annuities, a significant increase from the 32 percent who did so from the beginning of 2021 to the end of 2022.
  • Consumers whose financial experts suggested strategies to combat inflation lost less of their purchasing power than others. Consumers who work with a financial professional have lost an average of 2 percent of their purchasing power over the past 12 months due to inflation, while those who don’t work with a financial professional have lost twice as much – an average of 4 percent.
  • The early retirees surveyed said they felt the effects of inflation more than retirees. 41 percent of pre-retirees reported negative effects of high interest rates on their household finances, while only 29 percent of retirees reported the same effect.
  • The research shows that how people feel about inflation and the economy as a whole depends on where they get their news from. Reliance on particular news sources may reflect a level of economic optimism or pessimism based on the bias of the media company.

“Understanding how inflation affects our economic environment is critical to financial planning, and we see that to varying degrees, consumers and financial professionals are either unsure or simply doing something wrong,” says Glen Franklin, assistant vice president for RIA research and lead generation strategy for Jackson National Life Distributors, Jackson’s marketing and sales business.

“While it is important to understand and manage inflation risk throughout the retirement process, misunderstanding its impact can result in over- or under-spending of retirement savings. It can also have a significant impact on saving before retirement. Our findings suggest that there is a strong opportunity for more financial professionals to actively address customers’ concerns and that consumers clearly benefit from such guidance when making changes to their investments.”

Jackson said the study highlights extensive academic research focused on four key areas: the impact of inflation on financial prospects and outcomes; 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 wasn’t on our radar for several decades, but it came back to the forefront following the post-pandemic price surge,” says Alicia Munnell, professor of management science at the Carroll School of Management and director of the Center for Retirement Research at Boston College . “High inflation has a real impact on financial security in retirement. While many households compensated for the short-term problems by drawing on assets and reducing their savings, such measures will lead to lower consumption in the future.”

The research was conducted between June 12 and October 12. 27, 2023, included online surveys of 400 financial professionals and more than 1,500 consumers, including both pre-retirees and retirees between the ages of 55 and 85. Respondents were required to participate in or lead household financial decisions.

Part one of Jackson’s “Security in Retirement” series focused on longevity risk, or the risk of outliving income. Future studies will examine and analyze a selection of critical risks that impact Americans’ retirement security, such as: B. Health care, market dynamics and political risks associated with government programs.

Details and updates on this research and other proprietary research materials developed by Jackson can be found here.

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