CLEVELAND, Ohio — Between record inflation, volatile market conditions and general uncertainty emerging from the COVID-19 pandemic, Americans are finding it harder to stretch a dollar. Several recent studies show financial anxiety is also weighing on retirement plans, with many adults feeling the need to save more and wait longer before they exit the workforce.
“Inflation is really psychological for folks, as much as it is impacting our bank accounts,” said Michael Goldberg, an associate professor of design and innovation at the Case Western Reserve University Weatherhead School of Management.
Overall inflation is up 8.2% in the past year. Many Americans are feeling the pinch at the grocery store, where food prices have increased 13% and at the pump, where the national average price for a gallon of gas topped $5 over the summer.
Economists say it’s no wonder saving for retirement is also creating additional stress.
“Because they’re worried about the present, they’re naturally worried about the future and making sure they have enough savings to sustain them for those years when they’re not going to be bringing in significant income,” Goldberg said.
According to a recent survey by Bankrate.com, 55% of working Americans feel like they’re behind on their retirement savings. Another study from Northwestern Mutual found adults now expect to retire at 64 and need to save $1.25 million to retire comfortably. That’s up from age 62.6 and $1.05 million in savings respondents reported one year ago.
Financial advisors point to current market conditions, which have caused the value of a traditional 60-40 portfolio to drop 10-15%
“This has never happened. If you go back in history, the times that the stock and bond market were down at the same time is extraordinarily rare,” said Brian Pietrangelo, the Managing Director of Investment Strategy at Key Wealth.
Corbin Blackburn, a Wealth Advisor at Cleveland Wealth, added, “When you put those two together, that’s 90% of people’s wealth for retirement. Naturally, that causes a lot of emotion, a lot of doubt that’s there.”
Blackburn explained how much one needs to save for retirement depends on the person’s standard of living and how early they plan to leave the workforce.
“Step one: understand what you’re going to need to spend in retirement,” he said. “Step two is to then create a plan to generate that income. But make sure it’s a plan that can weather the storm like we’re seeing this year.”
Pietrangelo recommends beginning to save early in your career, even if it starts small.
“The key is not how much you’re putting away,” he explained. “It’s starting the process of gaining confidence to put away money in a retirement plan over the long-term, like a habit.”
Both recommend regular financial “check-ups,” to make sure your savings and investments are on track for your retirement goals.
“If you can figure out things that might be a potential problem before they actually get worse, then you’ve got more time to solve the problem,” Pietrangelo said.
They also caution reacting emotionally to fluctuations in the bond and stock markets, but rather encourage clients to make smart moves for the long-term.
“If you’re retired for 30 years, you’re going to see a lot of periods like this,” Blackburn said. “Take a step back, look at it according to your plan and figure out what the right path is forward.”