The effects of inflation may be felt for decades to come: Americans are hitting pause on retirement savings
Most of us are feeling the pain of inflation now, but the rising cost of almost everything may be impacting our future selves as well: People are cutting back on saving for retirement as a result of inflation.
The majority of Americans say current financial issues are more pressing than preparing for the future. Two in three Americans (67%) say they are more concerned about paying bills right now than saving for their financial future, according to a new study from Allianz Life Insurance Co. of North America.
Inflation and reduced purchasing power is to blame. The vast majority (82%) of Americans say they are worried about rising inflation continuing to have a negative impact on the purchasing power of their income in the next six months, the study found.
As a result, many retirement savers have hit pause. A majority of Americans (55%) say they have either stopped or reduced their retirement savings due to rising inflation. And 45% say they have had to dip into their retirement savings because of rising inflation.
“Reducing retirement savings should be a last resort, short-term answer for inflation because it could have a significant detrimental effect on financial security for years to come,” said Kelly LaVigne, vice president of consumer insights of Allianz Life.
Three in four millennials (75%) say they are more concerned about paying bills now than about saving for their financial future, along with 73% of Generation X and 56% of boomers. As a result, 66% of millennials say they have either stopped or reduced their retirement savings due to rising inflation, compared with 55% of Gen X and 47% of boomers.
The majority of Americans (62%) said they worry a major recession is right around the corner, and 77% say they think the market will continue to be very volatile in 2023.
More Americans are bracing for the long haul and thinking market volatility will affect their future finances. If markets continue to be volatile in 2023, 65% say they will have to adjust their retirement and investment plans. This was up from 57% at this time last year. At the same time, 40% of those with a 401(k) match worry that their employer will suspend the practice.
This could affect investing behavior. Just 19% say they are comfortable with current market conditions and ready to invest now. This is down from 29% at this time last year. Nearly two in three Americans (64%) say they would rather have their money sit in cash than endure market swings.
“It’s understandable that people are worried about market risks as we start the new year, and while it might feel a little counterintuitive, it’s important to remember that money left out of the market—even in times of volatility—isn’t working hard for you,” said LaVigne. “This money, while subject to potential market drops, will also miss out on gains when the market recovers. Timing the market is always a bad idea. Missing the days when the market performs best during recovery could postpone retirement for years.”