This post was originally published on this site
https://content.fortune.com/wp-content/uploads/2023/05/Recommends_time_is_money_blue_bg.jpeg?w=2048
Many Americans are feeling the pressure of a red-hot inflation rate, which stands at 4.93% as of April. Some have had to cut back on their regular spending or rely more on debt to get by, while others have put major financial goals on the back burner—including retirement.
How inflation has impacted retirement savings
The latest TIAA Institute-GFLEC Personal Finance Index (the P-Fin Index for short) finds that 25% of employed adults cut their retirement savings because of financial pressures created by inflation, and almost half of that group (12% of workers) stopped saving entirely.
Certain segments of the American population have been hit especially hard by the financial challenges caused by inflation.
Approximately 40% of Black and Hispanic adults, as well as members of Generation Z, find it difficult to make ends meet in a typical month, compared to 30% of the adult population as a whole. Plus, about 50% of each of these groups lack enough non-retirement savings to cover one month of living expenses vs. 39% of all adults. For women (who already have less savedforretirement than men, on average), the report shows that 1 in 4 cut their retirement savings and approximately 13% stopped saving for retirement altogether due to inflation.
“This steep of a drop—on top of a crisis where 40% of Americans already don’t have enough saved for retirement—means many families will have to work even harder to achieve a secure retirement,” stated Surya Kolluri, head of the TIAA Institute, in a press release. “There are no simple solutions to this challenge, but we need to take a holistic approach, because health and wealth are two sides of the same coin. It’s just as important to know about someone’s medical condition as it is to know about the health of their retirement savings accounts, and employers need to engage workers on both fronts.”
How to boost your retirement savings
General rules of thumb suggest that you should aim to save about 12%–15% of your annual salary each year as soon as you start working and have the means to save. But any amount you’re able to save will make a difference. And experts say that pumping the breaks altogether on saving for retirement may provide some short-term relief to tight cash flow, but it will cost you in the long run.
“The problem is that the current benefit of reducing retirement saving will always be more attractive, as it enables you to better deal with the present impact of inflation,” says Clint McCalla, a certified financial planner and senior wealth advisor at LourdMurray in San Diego, CA. “You don’t yet feel the future impact of insufficient retirement savings, but it is important to think about what retirement will look like if you have not saved enough.”
One result of not saving adequately, McCalla says, is that retirement may not be an option if you want to maintain your standard of living. “That could mean less time with those that you care about, including family and friends,” he explains. “More than anything, it is the risk of not being able to do what you want to do, when you want to do it.”
The good news: there are ways to grow your retirement savings, even with costs on the rise.
- Ask for a raise. If you haven’t been given a raise in a while, it could be time to chat with your boss. “Many companies have not provided cost of living increases in line with broader inflation,” says McCalla. “Don’t be afraid to ask for a raise—the worst thing they can say is no.” He explains that you should make your case, be respectful, and consider your options if the outcome isn’t what you had hoped, including looking for other job opportunities.
- Take advantage of employer contributions. Many employers offer a match your retirement contributions, usually up to a certain percentage. So even if you aren’t in a position to contribute a significant percentage of your income toward your retirement account, contributing enough to take advantage of a match could help you boost your savings.
- Look for opportunities to reduce your most expensive monthly expenses. This will look different for everyone, but reviewing your biggest monthly expenses and finding ways to trim them down could help free up some monthly income to put toward your retirement account. For example, you could downsize to a more affordable vehicle with a smaller monthly payment, or negotiate lower rates with your service providers.
The takeaway
Saving for retirement is a goal you’ll be working toward for the majority of your adult life. And while it’s okay to adjust your savings as your circumstances change, reducing the amount you’re saving for an extended amount of time, or pausing your contributions altogether, will only make it harder to get by in the future. So prioritize your retirement savings today, even if that means making some (temporary) sacrifices.
