The COVID-19 pandemic may have been the all-encompassing focus and source of angst over the past 18+ months, but now there is a more looming threat to lifestyles and retirement for many Americans.
Rising inflation is the “single greatest risk” to retirement plans in 2022 according to a quarter of respondents in the annual New Year’s Resolutions Study conducted by Allianz Life Insurance Company of North America. While other concerns affecting retirement declined (outliving one’s money, increased healthcare costs and job security), inflation worries tripled to 25% from 8%. Inflation has also played into stress around Social Security, as Americans fret about its insolvency and demographic challenges.
Previously, the pandemic was identified as the most concerning threat of 2021 (48%) with an increased cost of living on its heels at 38%.
Kelly LaVigne, Allianz Life’s Vice President of Consumer Insights, says that while the pandemic still affects much of the world, “inflation is clearly a more pressing concern as people live with it day to day,” adding that it’s forcing individuals to “think about how they can mitigate this significant risk to their retirement security down the road.”
Financial stability is top focus, but actions don’t follow suit
The study also revealed that the percentage of people who identified financial stability as their top focus area for 2022 reflected an increase to 30%, the highest since 2017. But words speak larger than actions with respondents saying that they are including financial planning in their upcoming “resolutions” at an all-time low of 12%, down 21% points from its high in 2009-2010. The reasons for avoiding financial planning has remained unchanged during the study’s history according to Allianz Life, noting that a third of respondents believe they already have a solid plan (34%), or that they don’t make enough money to worry about it (26%).
Many people still favor a DIY approach with only 22% of respondents saying they are more likely to seek the advice of a financial professional in 2022, down from 27% the previous year. This confidence could be a reflection of the fact that more people are actively managing their finances and report that their “bad financial habits” are on the decline:
- Less than one-third (28%) saying they “spend too much,” down from 32%;
- Only 23% say they “save some, but not as much as they could,” down from 27%; and
- One-third believe they have no bad financial habits, up from 28% in 2020.
Millenials more stressed than other generations
Allianz Life said that generationally, some groups are feeling the financial burdens more than others. One-quarter of Millennials said their financial situation got worse this year compared to 2020, higher than both Gen Xers (17%) and Baby Boomers (15%). Millennials are also more concerned about stagnant wages (22% vs. 15% Gen X and 6% boomers) and job security (21% vs. 12% Gen X and 5% boomers). They are particularly concerned that the rising cost of living will impact their ability to pay for necessities (65%), and save enough for retirement (71%) and short-term goals (70%).
Millennial’s financial concerns could be affecting their health, with 46% saying they experienced more overall stress this year compared to last year, the highest of all generations (37% Gen X and 27% boomers), as well as more stress specifically related to their finances (41% Millennials vs. 28% Gen Xers and 16% boomers).
“Whether you work with a financial professional or set your own agenda for managing your finances in the new year, it’s crucial to consider the various risks like inflation that can derail your financial strategy and adjust accordingly,” added LaVigne. “Regardless of your age or amount of time until your retirement, it is important to take into account all of these issues and begin to devise an action plan to mitigate these risks.”
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
