Is ignorance fueling participants’ retirement paranoia? Americans rank inflation as their main economic worry, yet wildly overestimate the rate of inflation itself, according to a new survey from Allianz Life.
Respondents predicted an average increase of 4.4 percent per year, with a third believing the cost of living would increase between 5 percent and 10 percent per year.
Yet the average inflation rate in the United States for the last 20 years was far lower at only 2.15 percent.
Fully 32 percent said they were either “panicked” or “very worried” about inflation overall.
Despite it being a top concern, the study also found that 64 percent of Americans do not have a financial plan that addresses the rising cost of living in retirement.
Of those who do, 51 percent claimed their financial plan to address it was to be more frugal with money when they retire.
“Although it may be an option for managing expenses, frugality is not a financial strategy that will mindfully and effectively address the rising cost of living throughout retirement, especially one that could last 30 years or more,” Allianz Life Vice President of Consumer Insights Deb Repya said in a statement. “There are many factors to consider when planning a long, comfortable retirement and addressing inflation is a critical piece of that puzzle.”
Many Americans admit they will need to live more modestly in retirement and expressed concern about paying for essentials, particularly health care, as costs rise.
Fifty-four percent of those surveyed claimed they were either “terrified” or “very concerned” that the rising cost of living would affect their ability to pay for healthcare. The same concerns were expressed about long-term care, housing, groceries/food, and travel/leisure.
Nearly four out of 10 respondents expressed they were either “panicked” or “very worried” they might not be able to afford the lifestyle they want in retirement due to the increased cost of living.
While the study exposed worries about the rising cost of living and revealed a lack of financial planning to address that concern, it also showed that Americans may not fully understand how inflation will impact them in the future.
“While this study illustrates an understanding that inflation is an important retirement planning issue, it also shows there are still misconceptions about inflation and how to address it as part of a sound, long-term financial strategy,” Repya added.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
