As American Savers Brace for Disaster, the Smart Money Is Doing This…

As American Savers Brace for Disaster, the Smart Money Is Doing This...
Photo by Rana Sawalha

The highest inflation since 1982, the Fed’s $9 trillion balance sheet and the declining purchasing power of the U.S. dollar only scratch the surface of the grim economic picture for those of us saving today for our retirement.

For anyone already on a fixed income, the skyrocketing price of gasoline alone can put a big dent in their budget…

So one good question to ponder in light of this rather dark reality is: How are Americans who are saving for retirement adapting in this unpromising environment?

That’s what we’re going to examine briefly in this article. Let’s get started…

Americans are learning to delay gratification

A recent article in 401(k) Specialist reveals that Americans are beginning to lose appetite for risky investments, and are prioritizing safety and lower-risk saving habits:

Americans would rather put money toward an emergency fund (65%) than spend money on a vacation (35%), save money for retirement (79%) rather than save money for a wedding or another big event (21%), and contribute $100 toward their 401k (62%) rather than spend $100 on a feel-good purchase (38%).

According to the Fidelity research covered in the piece: “Choosing to put money into their 401k over a feel-good purchase is especially true when looking at individuals with a retirement plan (72%).” That’s a somewhat obvious conclusion – we can’t expect people without a 401(k) to contribute to it, after all.

It’s always good to have a well-formed retirement plan. But perhaps the most-interesting part of the article is the primary motivation among older savers:

They are also prioritizing long-term retirement plans over short-term workplace benefits: nearly three-in-five (57%) would prefer a higher company match on their current retirement plan than additional paid time off over what they currently get (43%), and over half (56%) would prefer a strong retirement plan match over full-time remote work (44%).

This makes sense in terms of “lower-risk saving habits.” Both majorities prefer money-in-hand over less quantifiable benefits. Perhaps the lesson of the grasshopper and the ants is finally taking root? Perhaps Americans are beginning to realize their only hope for a secure financial future is to take matters into their own hands and ramp up their retirement saving?

With the current state of economic affairs, can lawmakers offer any help?

They seem determined to try…

Politicians meddle with “Secure Act 2.0”

Even the latest trillions of Congressional spending (including 1/3 of 1% earmarked to support Ukraine) appears to have left out the latest iteration of the “Secure Act” retirement saving legislation.

(One previous version funded failing pension plans with $86 billion of taxpayer money, so you can guess where this is heading.)

But “Secure Act 2.0” (as it’s colloquially known) could pass later this year. According to one summary, it looks like this version contains more top-down government meddling with our retirement systems.

Here are 3 highlights:

  1. “Essentially, lawmakers are saying, we’re not going to require employers to start a retirement plan, trillions of Congressional says Josh Gotbaum, a guest scholar at the Brookings Institution.
  2. Beyond incentivizing businesses to open employee retirement plans, the bill would require them to automatically enroll their employees in plans such as 401(k)s or 403(b)s, unless the employee opts out.
  3. “The big picture here, is that if you have money to save, the Secure Act 2.0 will allow you to contribute even more and delay withdrawals even more.” – Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center

This proposed legislation could be useful for some people, most specifically those who have neglected saving for retirement up to now. But there doesn’t seem to be anything about matching employee contributions, raising the company match or mandatory retirement savings in the Secure Act 2.0.

Possibly even more importantly is what the Secure Act 2.0 doesn’t include. Did you notice anything about ensuring Social Security is actually secure? Lowering taxes on retirees? Balancing the budget? Nope.

At best, Congress has doubled down on outsourcing responsibility for our financial futures to ourselves, and our employers.

Frankly, if this is what lawmakers and politicians are calling “adapting” to the current economic situation in the U.S., we might as well be on our own.

A roadmap for dealing with retirement insecurity

Even if the Secure Act “2.0” does pass later this year, what makes this time any different? It isn’t likely to make things financing your own retirement successfully any less challenging. The most likely result is yet another set of empty promises made by politicians desperate to win reelection (most of them are more insecure than secure these days, too).

So now might be a good time for you to create your personal “Secure Act” (without the additional red tape). Examine your own retirement plan (if you don’t have one, check out our five step guide). Consider whether your savings are overexposed to risk, and diversify as you see fit. If you’re concerned about the corrosive effects of 40-year-high inflation on your future purchasing power, check out our comparison of inflation-resistant investments.

While you’re at it, consider whether diversifying your paper assets with physical gold and silver is a smart move. Once you know how gold performs over time, you may want to join the tens of thousands of Americans who are relying on physical precious metals to help them achieve a stress-free retirement.

2022, Featured, inflation, retirement plan, retirement savings