While inflation is impacting short-term spending and savings decisions, Americans report that their retirement strategies remain largely intact, mainly with the help of workplace retirement plans.
Nearly two-thirds of adults (65%) report that as a result of inflation, they are cutting back on short-term spending to stay on track with their long-term financial goals. In addition, one in four respondents report that their long-term financial strategy has not been impacted due to inflation and 72% of respondents still expect to retire at their desired age. These findings are according to the latest New York Life Wealth Watch survey conducted from March 23–25, 2022, among a national sample of 4,416 adults.
“Inflation risk is one of the ‘big four’ risks in retirement—alongside withdrawal rate risk, longevity risk and the risk that the timing of investment returns negatively impacts how long a portfolio lasts—but it is the least talked about because we’ve been in a protracted low-interest rate environment,” notes Dylan Huang, Senior Vice President and Head of Retirement and Wealth Management Solutions at New York Life.
Huang observes that for those currently retired, inflation risk is very real and will impact both how much retirees can withdraw from their portfolio and their lifestyle in retirement. Among those not yet retired, the firm is seeing this group make necessary adjustments to their financial strategies while “not allowing short-term anxiety to derail their plans for retirement,” he further explains.
According to the findings, Americans are making changes to their spending habits to maintain or increase contributions to their retirement savings. Respondents say they are cutting back on social activities like eating out (35%), nightlife (31%) and travel (28%), though some report holding off on larger expenditures like home renovations (16%) or having more children (13%).
Although Americans report being committed to maintaining their retirement savings contributions, they also have adjusted their short-term financial goals to accommodate the impacts of inflation. In this case, one in three adults report contributing less to their emergency funds in order to pay for everyday expenses, with the average monthly contribution falling by $243. Millennials are making the most significant cuts, with their monthly emergency fund contributions falling by nearly $289.
Beyond stalled emergency fund savings, Americans are also putting off vacations (33%), paying off credit card debt (22%), buying a car (22%) and buying a home (16%). Here too, Millennials are feeling the impacts of inflation on their short-term financial goals: 36% report delaying vacation, paying off credit card debt (29%), buying a car (26%) and buying a home (26%).
Staying on Track with Workplace Plans
Despite the immediate impacts of inflation, retirement planning remains top of mind. When asked what prompted them to begin preparing for retirement, both retirees and non-retirees report access to resources through their workplace and feeling they were at the right age to begin preparing as top factors.
Surprisingly though, it seems that retirees started planning for retirement much later than would otherwise be recommended. According to the findings, retirees said they started preparing for retirement at age 42 (on average) and started prioritizing retirement at age 45. In addition, 42% of retirees said they started prioritizing retirement because they felt they were at the right age, followed by 32% who said they started because their job provided resources.
While 37% of retirees said they are happy with the age they started preparing for retirement, 46% said they wished they had started earlier, at an average age of 30.
Meanwhile, non-retirees said they started preparing for retirement at an average age of 34. Nearly half (45%) said they started doing so because their job provided resources and 37% said it was because they felt they were at the right age to prepare.
When looking at ways non-retirees save, 59% said their employers offer a 401(k) plan and 52% said their employer offers a match, with 44% reporting they contribute to reach the employer match. Additionally, 42% of respondents reported also using a traditional IRA a savings vehicle.
“While it’s heartening to see a significant percentage making 401(k) contributions and taking advantage of an employer match if it is offered, this is just the first step toward building a financial strategy that can sustain living 30 years or more in retirement,” says Huang, who adds that the partnership of a trusted financial professional can help put these resources into the context of a broader financial strategy.
