At the height of a global pandemic, Americans somehow became more confident than ever that they would be able to retire comfortably. New research shows that optimism has faded considerably in the wake of rampant inflation and growing uncertainty about financial markets.
For the first time in over five years, more Americans perceive that their chances of a comfortable retirement are decreasing than increasing, according to the latest results from the University of Michigan’s Survey of Consumers. The new data show that retirement security sentiment now stands well below pre-pandemic levels, officially ending the long bull-run hopeful retirees enjoyed working towards for most of the prior decade, according to analysis of the survey from the Economic Innovation Group (EIG).
Respondents were asked if they thought their chance of a comfortable retirement have gone up or down compared with 5 years ago. As of March 2022, only 23% said chances have gone up while 30% said chances have gone down.
Since December 2021, the share of respondents who believe that their chances of a comfortable retirement have gone down relative to five years ago has again exceeded the share who think that those chances have gone up. The analysis says this marks an end to a decades-long run of gradually improving retirement expectations coming out of the exceptional pessimism wrought by the 2008 financial crisis.
The current drop in optimism is steepest among lower- and middle-income Americans. The share of respondents reporting that their chances of a comfortable retirement have worsened has risen by 11 percentage points for those in the bottom one-third and by 13 percentage points for those in the middle one-third of the survey’s income distribution relative to their pandemic-era lows.
The belief among the bottom-third of earners that their income will be sufficient for a comfortable retirement has fallen more than twice as fast as it has for respondents in the top one-third.
The analysis also revealed the expectations for the top one-third of earners has proven more resilient. Even after retreating slightly over the past two years, the top one-third of respondents are more confident than ever in the pre-pandemic history of the survey that they will maintain their (by definition, already higher) living standards in retirement—attributable to the historic and extraordinary gains Americans with asset holdings have enjoyed over the past several years.
What’s behind the decline
The analysis also sought to answer the question of why Americans–especially lower- and middle-income ones—are growing more pessimistic about their retirement prospects. Several factors are likely at work, the analysis found. First, the specter of inflation looms largest for savers, and those who have put together a modest nest egg for their retirement may worry that its long-term value is being eroded.
A natural rebalancing from the pandemic’s financial excesses may also be at work: household savings skyrocketed in 2020 as Americans dramatically curtailed spending outside the home and generous stimulus checks topped up savings accounts further. Being more flush with cash than usual gave American households a new sense of wealth and financial security. Now, that wealth effect is fading as households draw down their savings and habits normalize. The pandemic provided a one-time confidence boost that has now passed.
Despite the downturn, retirement attitudes remain sunnier than the past—which the analysis attributes to a legacy of pandemic-era stimulus. The fiscal response from the federal government bolstered many Americans’ finances above pre-pandemic levels, and retirement expectations still remain historically strong despite surging inflation. Even lower-income Americans feel more confident in their retirement incomes today than they have on average since 1998.
The Economic Innovation Group is a Washington, D.C.-based bipartisan public policy organization that produces nationally recognized research and works with policymakers to develop ideas that empower workers, entrepreneurs, and communities.
SEE ALSO:
• The Good, The Bad, and The Ugly: All from EBRI’s 2022 Retirement Confidence Survey
• DC Plan Participant Retirement Confidence Exceeds Expectations
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
