Retirement Savings Drop Significantly Due to Inflation
Interest rates are rising at a blistering pace, but inflation still isn’t budging from its record levels. With prices on everything going up, households are being squeezed. And unfortunately, it looks like one thing Americans are cutting back on is saving for retirement. A recent Bankrate survey found that half of working US adults feel like they are behind on retirement savings. Over a third of them say they feel ‘significantly’ behind.
Three out of four people surveyed said they contributed the same, less or nothing towards their retirement in the past year. More specifically, 34% contributed the same as last year to their retirement. 16% contributed less. And a quarter said they contributed nothing over the past two years. 1
The Bankrate report said people by and large blame inflation for cutting back on saving. US inflation hovered at 8.3% in August, down slightly from 8.5% in July and a 41-year high of 9.1% in June. Inflation has outpaced wages. With less money available, people are forced to deal with the here and now. The Federal Reserve found that one in four Americans have absolutely nothing saved. Overall, Americans are an estimated $3.68 trillion behind in saving for retirement.2
People are aware of the bind they are putting themselves in. Most people (55%) said they feel they are behind on retirement savings. When broken out by age, numbers go up for older Americans. 65% of Gen Xers say they are behind. While 71% of Baby Boomers feel like they are behind on retirement savings. Bankrate Chief Financial Analyst Greg McBride said older workers are faring especially poorly during this period. They don’t have as much earning time left to rebuild their nest egg. 3
Vanguard found the median retirement savings was $90,000. Experts fear that number may drop significantly in 2023 due to continued inflation and slowing growth.
A Bear Market Hurts Savings
Investors are strongly advised to protect their wealth in a bear market. They should try to wait it out and avoid locking in their losses. But this is challenging for those about to retire. McBride said, “Generally speaking, American workers are undersaved for both retirement and emergencies. An economic downturn could further dent both of those, with unemployment or income disruption sapping emergency savings and some workers tapping retirement savings early due to financial hardship.”4
The average bear market lasts 300 days. But a prediction from Saba Capital’s Boaz Weinstein says this bear market is different. He foresees a decades long bear market like what happened in Japan. He said, “There’s no reason that this difficult [economic] period will only last two to three quarters [and]..no reason to think we’ll have a soft landing or a shallow recession.” According to Weinstein, we haven’t seen a truly big market plummet yet. There are competing forces – war, pandemic, China, inflation – that are playing against each other. They are drastically increasing volatility and delaying a big crash. But that crash will eventually come. 5
Americans must prioritize saving for their retirement. The future is going to come whether you are prepared or not. Getting your savings on track begins with utilizing tax-advantaged accounts such as 401 (k)s and IRAs. A Gold IRA is an exceptionally good idea now as it combines tax advantages with the wealth protection that comes only from precious metals. Avoid being a statistic. Contact us today to prepare for your tomorrow.