The current inflationary environment is derailing most Americans’ retirement plans. A new GOBankingRates survey found that nearly three-quarters of Americans said that inflation is affecting their plans in some way, from how they invest to when they plan to retire.
30% of Americans Are Trying To Save More for Retirement
The most common response to inflation when it comes to retirement planning is making an effort to save more, with 30% of Americans saying that they are now trying to put more money away for the long term. This way of coping with inflation was particularly common among younger respondents, with 41% of those ages 18 and 24 and 33% of those ages 25 to 34 saying they are now trying to save more for retirement.
The survey also found that women are more likely than men to be making an effort to save more for retirement — 32% of women versus 27% of men said they are trying to save more.
If you are able to save more, this is an effective way to hedge against inflation, said Clark Kendall of Kendall Capital in Rockville, Maryland.
“Save more than you think you’ll need,” he said.
It could be worth it to make sacrifices now to better prepare your long-term finances, said Anessa Custovic, Ph.D., chief investment officer at Cardinal Retirement Planning.
“If possible, try to spend less and save for the future,” she said. “It’s unclear when inflation will peak or when we will see a deceleration in housing/rentals or food prices. The only way to hedge this is by saving more.”
For those who want to save more, Custovic recommends automating the process.
“Have a certain amount of your paycheck taken automatically and put in a savings account,” she said. “If you can, try to get a high-yield savings account. Now is not the time you want to let a large sum of cash sit earning barely any money. There are a few banks that offer pretty competitive savings rates without having to lock up your money.”
20% of Americans Are Delaying Their Retirement Plans
One-fifth of Americans said they are delaying their retirement plans due to inflation. Fortunately, this doesn’t seem to be the case for those who have already reached the traditional retirement age — only 6% of those ages 65 and older said they are delaying their retirement. However, 19% of those nearing retirement age — Americans ages 55 to 64 — said they are delaying their plans to retire.
Delaying retirement in this current inflationary period is understandable, said Rosanna Guardavaccaro, a financial planner at Barnum Financial Group.
“Prices of goods and services have been rising sharply for the most part and there are some benefits to continuing to work,” she said. “Of course, if you can continue in your same job, you will receive approximately the same amount of money. If your company has a mandatory retirement age, you may take the skills acquired in the workplace and offer them to other organizations.”
In addition to allowing you to earn more money to put toward retirement savings, delaying your retirement also has Social Security benefits.
“Social Security calculates your monthly benefit by using your 35 highest-earning years until age 70. If you keep working and paying into Social Security, your earnings record will keep being updated,” Guardavaccaro said. “If the money you make in later years outweighs what you made earlier, your benefits will increase accordingly.”
11% of Americans Are Changing Their Investment Strategy
More than 1 in 10 Americans said they are changing their long-term investment strategy to account for inflation. Younger respondents were most likely to change their retirement investment strategy, with 14% of Americans ages 18 to 24 and 13% of Americans ages 25 to 34 saying that they are making changes.
The survey also found that men were more likely to be changing their long-term investment strategy than women — 13% of men and 8% of women said they were making changes.
If you are making changes to your investment strategy, Kendall recommends utilizing dollar-cost averaging if you aren’t already.
“Dollar-cost averaging means dividing up the total amount to be invested across periodic purchases of a target asset, which helps reduce the impact of volatility on an investment,” he said.
Kendall also recommends investing in dividend-paying stocks and maintaining a diversified portfolio.
“Dividend-paying stocks such as IBM, Johnson & Johnson, Procter & Gamble and Kellogg are great ways to protect long-term purchasing power,” he said. “Diversify your portfolio with short-term investments — for example, CDs, money market accounts and high-yield savings accounts — for short-term needs and long-term investments — for example, a 401(k) or TSP, if you have access to one, or a traditional IRA or Roth IRA for long-term needs.”
8% of Americans Are Now Planning To Work Part-Time in Retirement
For some Americans, their plans to fully stop working in retirement have been affected by inflation. Eight percent of survey respondents said they are now planning to work in retirement when they weren’t before. This response was most common among those 65 and older — those most likely to already be retired — with 14% saying they are now planning to work in retirement.
While this might be a change of plans for some, this isn’t necessarily always a bad thing.
“Many people have found [working part-time in retirement] quite satisfying,” Guardavaccaro said. “They might be doing similar work to what they had done before or doing something brand new, which they find stimulating.”
5% of Americans Are Planning To Relocate Somewhere More Affordable
Where you live can greatly affect your cost of living, so 5% of Americans said they plan on fighting inflation in retirement by relocating to somewhere more affordable. This response was most common among those nearing retirement age, Americans ages 55 to 64, with 7% saying they are planning to relocate to cut costs.
“Moving to a location with lower living expenses can go a long way toward maximizing your retirement savings,” said Andrew Latham, certified financial planner and director of content at SuperMoney.com. “For example, imagine you live somewhere where your living expenses are $50,000 a year and you have $800,000 in retirement savings. Assuming your portfolio grows by 5% and inflation grows at 3%, you will run out of money after 19 years. However, your savings could last 25 years if you move somewhere where your living expenses are $40,000 a year.”
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Methodology: GOBankingRates surveyed 997 Americans ages 18 and older from across the country between Aug. 9 and Aug. 11, 2022, asking 16 different questions: (1) How much money do you currently have saved for retirement?; (2) How much money do you think you’ll need to retire?; (3) Realistically, at what age do you want to be retired?; (4) At what age did you start saving for retirement?; (5) What worries you financially about retirement? (Select all that apply.); (6) Do you plan to work in retirement?; (7) What assets do you have in your retirement portfolio? (Select all that apply.); (8) How has the current inflation impacted your retirement plans?; (9) How much of your retirement do you plan to fund with Social Security?; (10) How do you feel about the future of Social Security when you retire?; (11) What percentage of your salary are you currently investing for retirement?; (12) Are you planning to move after your retirement?; (13) Where is your ideal place to retire?; (14) What government programs do you plan to use for your retirement? (Select all that apply.); (15) Do you have a pension plan?; and (16) How much do you think the average American has saved at the time they retire? GOBankingRates used PureSpectrum’s survey platform to conduct the poll.