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Published: Nov 11, 2022 8 min read
Photo collage of a couple in beach chairs looking at a surreal sunset with a dollar bill sinking under the water
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Almost no one has enough saved for retirement, so if you feel like you’re behind, you are not alone.

The Center for Retirement Research at Boston College warned of a $7.1 trillion shortfall in retirement savings in the U.S. back in 2019. The lack of adequate retirement funds is significant and has been decades in the making. Adding fuel to the fire: a global pandemic and inflation that recently hit its highest point in decades. How can you navigate these challenges while planning for your retirement?

Is there a retirement crisis in the U.S.?

Among Americans nearing retirement, those 60 to 67 years old, less than a quarter say they've saved enough money, according to the Schroders U.S. Retirement Survey. Retirement can seem like an unattainable goal for these people, as well as younger generations watching their parents struggle. How did the retirement crisis come about?

For one thing, not all private-sector workers have employee-sponsored retirement plans. Even among those people who have been conscientiously contributing to retirement accounts, 2022 has proven to be a tough year. The U.S. stock market has slumped, and 401(k) plans and individual retirement accounts (IRAs) have taken significant hits. One estimate puts 401(k) losses at about $1.4 trillion and IRA losses at $2 trillion this year.

Retirement is also more expensive in part because it is lasting for longer. “Decades ago, it was 10 to 15 years that folks had to supplement, now retirement can easily last 30 years or more,” says Christie Whitney, a certified financial planner (CFP) and director of planning at wealth management firm Rebalance. “Few are offered pensions anymore, and Social Security should only be seen as a supplement, not as a full solution.”

Why don’t Americans save for retirement?

Would there be a retirement crisis if people had just planned ahead? The actual answer is complicated.

In addition to the lack of access to workplace retirement plans, life has gotten more expensive. Over the past several decades, the cost of living has gone up exponentially while wages have stagnated. That means retirement is more expensive, and there is less money to save for it. A report from the American Society of Pension Professionals and Actuaries shows that people retiring in 2021 needed nearly double the amount that people retiring in 1990 needed to achieve 80% pay replacement.

Millions of Americans rely heavily on Social Security in their retirement years, but younger generations are unsure they will have access to these benefits. A total of 73% of millennials who responded to a recent Transamerica Center for Retirement Studies survey are worried that Social Security won’t be there for them when they reach their retirement age. Social Security reserves are projected to be exhausted by 2035. Of course, legislative action could address the lack of funding, but that remains uncertain.

How inflation affects retirement savings

Inflation is also contributing to the shortfall in retirement savings. While it has been moderating, spiking prices have taken their toll. Unsurprisingly, Americans are voicing concerns about retirement planning during a period of high inflation.

A survey conducted by investment company Voya Financial found that 66% of Americans are worried about inflation affecting their ability to save up for retirement. This concern is even higher among millennials and Gen Xers; 73% of millennials and 74% of Gen Xers are anxious about what inflation means for their retirement savings.

Many Americans are cutting back in other areas of their lives to stay on track for retirement. In a New York Life Wealth Watch survey, a total of 65% of Americans reported cutting back on their short-term spending, because of inflation, to keep up with their long-term financial goals. Expenses like travel, eating out and having more children are ending up on the back burner because people are worried about saving enough to retire.

Is retirement out of reach?

While the baby boomer generation is facing the consequences of a retirement crisis now, the effects will continue to ripple through subsequent generations. Factors like student debt and the expensive housing market also play a role in younger generations’ ability to save. But some research points to millennials being ahead on retirement savings when compared to baby boomers.

Retirement may not be completely out of reach, but it is taking longer to get there. A Gallup Poll found the average age of retirement was 57 in 1991. Now, the average age is 61. That poll also found that people still working today don’t expect to reach retirement until even further in life; their target retirement age is now 66.

How you can plan for retirement

The conditions that have created the retirement crisis are complex and unlikely to be solved in the near future. That means workers have to plan for retirement with these challenges in mind. Whether you are decades or just a few years away from retirement, you can change your saving and spending habits to prepare for the future.

Brush up on your financial literacy

Inflation and the lack of access to employer-sponsored retirement plans have undeniably made saving up a challenge, but Rebalance’s Whitney also points to a lack of financial education and literacy. Fundamentals like learning how to create a budget, save and manage debt play a vital role in preparing for retirement. If you don’t have an emergency fund, start saving up.

Start your savings plan

“If you don't have one, open an IRA. Savings is about habit, and starting young makes the work far less difficult,” Whitney says. “Educate yourself on types of investments, and when you are ready, talk to an advisor about the benefits of various types of investment vehicles.”

Make budgeting a habit

Once you start saving, it is important to keep it up. Budgeting can help you track your retirement planning progress. Find ways to keep tabs on your spending and saving habits. With a clear picture of where your money is going over time, you can make adjustments with your long-term savings goals in mind.

Keep calm and carry on

Brian Walsh, a CFP and senior manager of financial planning at personal finance company SoFi, cautions against emotional reactions to the current market volatility. “It is one thing to be told that bear markets occur every handful of years, but it is entirely another thing to experience a rapid and broad bear market like we have in 2022,” he explains. “Human emotion takes over, and people are tempted to stop contributions or reallocate their portfolios. Over the long term, both of these actions tend to be mistakes that set back your retirement plans.”

It is best to avoid reacting to market volatility, as stressful as it may be. Market ups and downs are inevitable, but if you stop contributions to your retirement savings that can cause serious setbacks to your long-term goals.

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