With inflation at a four-decade high, fast-rising interest rates and very volatile markets, many Americans are being forced to reconsider their retirement planning.
Whether it’s delaying it, planning to work part time once retired or relocating somewhere more affordable, many households are pondering what the best option might be. Here are some tips if you are considering retiring during this tough economy.
A new GOBankingRates survey found that, because of the inflationary environment, 20% of Americans say they will delay retirement, with the 45-54 age group considering it the most.
Some experts believe that this might be a good option — that is, if you can.
“Just about every living generation has been through multiple economic shocks over the past few decades, which have left a lot of people at or nearing retirement age in a compromised position,” said Chris Motola, economic analyst at Merchant Maverick. “If you’re in the right health and mindset to continue to be gainfully employed, there are several advantages to deferring retirement, including getting higher Social Security payouts when you do finally retire.”
While the easy answer is to say they’ll work longer, that may not always be feasible, due to health problems or care needs, according to Dave Goodsell, executive director at the Natixis Center for Investor Insight.
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Start Saving Now
Goodsell said most people recognize that retirement funding is increasingly falling on their shoulders.
“No matter where you are in your working life, it’s important to take advantage of every opportunity,” Goodsell said. “If you’re young, start saving even a little at a time. If you’re in a retirement plan, find ways to maximize your savings with a company match and auto escalation. If you’re over 50, take advantage of catch-up contributions. It’s important to take every step to achieve retirement security.”
Another key finding of the survey is that while 87% of Americans have less than $200,000 saved, 62% think they will need $500,000 or more.
What’s more worrisome is that the GOBankingRates survey finds that, while 26% of respondents say they would like to retire by age 56 to 62, 24% say they have not started saving yet, with 23% of the 55- to 64-year-old age bracket saying so and 25% of Gen X.
The right time to start saving is now, regardless of conditions, said Matt Kopko, VP of public policy at DailyPay.
“There will always be concern and uncertainty; but, if you start now, you will almost assuredly be in a much better place as you age,” Kopko said, adding that workers should not focus on how much they need to retire when they start their savings journey, as the most important step is simply to start the journey.
“More sophisticated planning can come with experience,” Kopko said. “The world is changing, and the retirement ecosystem of prior generations is no longer a dependable bet for younger workers.”
Take Stock of Your Portfolio
In terms of assets Americans have in their retirement portfolios, the bulk (52%) is in 401(k)s and IRAs, the survey finds. This is followed by stocks (39%), real estate (24%), crypto and bonds (21% each). Annuities, gold and ETFs come at the bottom of the list.
Given the current macroeconomic environment, “It might be a good idea to take stock in your retirement readiness before taking the plunge,” said Jerry Patterson, president of Fidelity Investments Life Insurance.
Before making any decision, he recommends several key areas to review:
First, is your savings portfolio ready to weather this new environment? Make sure to review your asset mix, including having the right blend of stocks, bonds and cash to ensure your savings will last throughout retirement.
Second, make sure you’re confident you have a good foundation of dependable income and have access to income that you can count on beyond your Social Security.
Third, take stock of your essential expenses.
“There’s a lot of pressure on our money coming from every direction — even in retirement,” Patterson said. “Have you separated what you consider your essential expenses — such as housing, food and transportation — and are you comfortable you have a plan in place to cover these essentials going forward, no matter what happens?”
Finally, think about your plans for non-essential spending, such as travel or establishing a second residence.
Ways To Catch Up
Patterson shared some additional tips, including the fact that you can take advantage of catch‐up contributions: If you are 50 or older, you can contribute an extra $5,500 a year to a 401(k) and an extra $1,000 a year to an IRA. In addition, he noted that at age 55 you can contribute $1,000 more to an HSA up to the time you enroll in Medicare.
If you own your home, estimate the impact of downsizing and investing the proceeds, Patterson said. “Turning home equity into retirement savings and reducing your living expenses may help to improve your retirement lifestyle.”
Finally, consider annuitizing. He said, “Combining a fixed annuity with an investment portfolio can reduce the risk you will outlive your assets.”
Working in Retirement?
The survey also found that a whopping 58% of Americans plan to work in retirement by taking a part-time job or a side gig.
Paul Dilda, head of U.S. retail strategy, products and segments at BMO Financial Group, said, “These survey findings only underscore what we know is crucial right now, and that is that everyone — especially those aiming to increase retirement savings — should look at their finances, develop a solid budget by talking with their banker or financial advisor, and implement the advice received right away. It’s always a good idea to have a savings plan in place; but, given rising inflation and economic uncertainty, Americans need to think and act differently to reach their financial goals.”
Dilda added that BMO’s recent Real Financial Progress Index survey found similar results to GOBankingRates’ survey, with the main takeaway being that it’s a different economy now and Americans need to take action to reach their financial goals right away.
“That begins with reviewing your finances, asking for help and developing a budget with (an advisor),” he said. “Even if you’re approaching retirement age, it’s never too late to begin saving, and your banker can help you create a plan and find out about products or services you didn’t know were possible, as well as how to implement a plan once you review your finances together and create a budget.”
More From GOBankingRates
Methodology: GOBankingRates surveyed 997 Americans aged 18 and older from across the country between Aug. 9 and Aug. 11, 2022, asking 16 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.