Bigger chunks of our paychecks are going to pay the bills as we juggle higher rent or housing costs, larger monthly payments on cars, and ongoing high prices on food, clothing and airfares.
Who wouldn’t be tempted to dial back how much money you set aside from each paycheck toward retirement? Throw cash in a 401(k) plan? When you need to make a car payment of $700 a month or higher? Or your rent just went up by $250 a month? At the very least, some people are thinking twice.
One in four adults — including those who are employed part-time and full-time — said they decreased their retirement saving in 2022 because of inflation’s impact on their finances, according to the newly released survey for the 2023 TIAA Institute-GFLEC Personal Finance Index.
Almost one half of those who decreased their savings — some 12% — stopped saving completely. Working women were a tad more likely to cut back or stop saving for retirement than men.
Saving for retirement takes a hit
Pulling back on retirement savings was extremely common among Hispanic workers — where 40% cut back on the amount of money they set aside in 401(k) plans and other retirement savings vehicles in 2022, according to the survey. In that group, 24% stopped saving. These figures were roughly double that among Asian, Black and white workers.
Among the youngest adults — those falling into the Gen Z a group born in 1997 and later — 26% decreased their retirement savings at work and 15% stopped saving entirely, according to the survey.
Among baby boomers — born from 1946 through 1964 — 25% decreased retirement saving in 2022, with 11% stopping saving entirely.
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The Personal Finance Index survey, conducted by the TIAA Institute and the George Washington University School of Business, was completed online in January and involved a sample of 3,503 U.S. adults, ages 18 and older. Asians, Blacks and Hispanics were quota sampled for at least 500 respondents each. Gen Z was also quota sampled for at least 500 respondents, enabling cross-generational comparisons.
Inflation causes anxiety, makes it harder to pay bills
Andrea Hasler, assistant research professor in financial literacy at the George Washington University School of Business and Global Financial Literacy Excellence Center, said 30% of consumers surveyed noted that they’re having more difficulty making ends meet after dealing with high inflation. That’s up from 24% a year ago.
Consumers are more likely now to face financial difficulties after taking on debt. According to the survey, 26% of adults — compared with 20% a year ago — say their debt and debt payments prevent them from adequately addressing other financial priorities.
Another concerning issue: Consumers lack enough emergency savings to cover just one month of living expenses.
Those without even such minimal emergency savings jumped to 39%, up from 32% surveyed a year ago. Such a dramatic change indicates, according to researchers, that many people might have dipped into savings to deal with the increased cost of living.
“When inflation hits and everything gets more expensive, you have to cut somewhere,” Hasler said.
How tens of thousands of dollars can be lost
Stuffing less cash into a retirement nest egg is, frankly, a logical short-term response. One could argue that it’s better to use money from your paycheck to buy necessities, like groceries and gas, instead of just tapping into high-cost credit card debt at 20% or higher.
But eliminating 401(k) contributions is actually a terrible move in the long run.
Surya Kolluri, the head of the TIAA Institute, who talked with me via Zoom on Monday, said many times working people focus on keeping an extra $30 or $50 a week to cover immediate needs. Too often, they don’t add up the hit they’re taking for building up wealth when they stop saving for retirement.
Take someone who is making make $55,000 a year and working in a job where employer will match up to 3% of what employees save on their own in the 401(k). Your 3% is $1,650. And if you save that much, your employer is going to add another $1,650 into your 401(k).
“That’s a significant amount of money,” Kolluri said.
Stopping saving for just one year means that you’re actually not setting aside $3,300 that year — your savings and the company match. It also means that you’re giving up the opportunity for that money to compound over many years of investing.
Kolluri gave me one example where not saving for retirement for just one year, using this example, could add up to a $15,000 difference over 20 years of working. That assumes the saver invested in an S&P 500 index fund over that time.
“These are big numbers,” Kolluri said.
No one can predict future returns in the market….
Read More: Retirement savings take a hit amid high inflation