While inflation is impacting short-term financial decisions, Americans report that their retirement strategies remain largely intact, according to New York Life’s latest Wealth Watch survey, released today.
“Among those not yet retired, we’re seeing this group making necessary adjustments to their financial strategies while not allowing short-term anxiety to derail their plans for retirement.”
Dylan Huang, New York Life
In fact, 65% of adults 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—including saving for retirement. 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.
“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,” said Dylan Huang, SVP and Head of Retirement and Wealth Management Solutions, New York Life.
“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,” Huang added. “Among those not yet retired, we’re seeing this group making necessary adjustments to their financial strategies while not allowing short-term anxiety to derail their plans for retirement.”
Maintaining retirement contributions
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 have also adjusted their short-term financial goals to accommodate the impacts of inflation. In fact, 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%).
“Creating a financial strategy is not something that should be done once and never thought of again until retirement. Ever-changing market environments can sometimes mean making difficult choices, as evident by the data showing Americans are contributing less to their emergency funds,” Huang said. “That’s why it’s critical to seek the help of a trusted financial professional to ensure that your financial strategy can withstand a variety of market conditions and enables you to achieve your short- and long-term financial goals.”
Workplace plans help keep retirement on track
Despite the immediate impacts of inflation on Americans’ wallets, 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.
About two-in-five retirees said that they started preparing because their job provided resources (40%) or they felt they were at the right age (38%), while almost half (45%) of non-retirees said they started preparing because their job provided resources, and 37% said they began preparing because they felt they were at the right age.
When looking at ways retirees and non-retirees save, over half (52%) of respondents said their employers offer a 401k plan and match a certain percentage of contributions, with 44% reporting they contribute to reach the employer match. More than two-in-five respondents are also choosing a traditional IRA—with 42% of respondents reporting this as a savings vehicle.
“For many Americans, the workplace is their first exposure to retirement savings education. While it’s heartening to see a significant percentage making 401k 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. The partnership of a trusted financial professional can help put these resources into the context of a broader financial strategy,” said Huang.
Additional findings from New York Life’s Wealth Watch survey include:
When it comes to retirement, starting early is key
• Retirees said they started preparing for retirement (on average) at age 42, and that they started prioritizing retirement at age 45. 42% of retirees said they started prioritizing retirement because they felt they were at the right age, followed by about one-in-three (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, about half (46%) said they wished they had started earlier, at an average age of 30.
• Similarly, 38% of retirees said they are happy with the age they started prioritizing retirement, while 43% said they wished they had started earlier, at an average age of 33.
Wealth Watch is a recurring survey from New York Life that tracks Americans’ financial goals, progress toward those goals and feelings about their ability to secure their financial futures, identifying key themes and trends that are emerging about topics like retirement planning, the role of protection-oriented solutions and the importance of financial guidance.
For a more in-depth look at the survey findings, click here to access the supplemental datasheet.
SEE ALSO:
• 401k Savers ‘Stay the Course’ Despite Market Volatility: Fidelity Q1 2022 Retirement Analysis
• The Good, The Bad, and The Ugly: All from EBRI’s 2022 Retirement Confidence Survey
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.
