Americans Uncertain How to Save for Retirement Thanks to This Economy

Americans Uncertain How to Save for Retirement Thanks to This Economy
Feeling a little... lost? Photo by Dimitar Donovski

We live in interesting times for retirement savers.

The good news is the pandemic appears to be winding down. COVID appears to be heading for endemic status and circulating yearly like influenza and other viruses.

But now forty-year-high inflation has taken center stage economically. The Federal Reserve has raised interest rates for the first time in more than four years. The Ukraine-Russia conflict is capturing global attention and countless news cycles. Financial markets are off their all-time highs and responding to daily news erratically.

It’s an uncertain time. For quite a few people (especially younger people), things feel a bit disjointed right now.

All this uncertainty makes saving for retirement feel more challenging this year. In fact, one Fidelity assessment of retirement reveals a rather alarming trend:

Almost half of next generation don’t see the point in saving for retirement until normalcy returns; 21% who left job during great resignation cashed out 401(k) after leaving.

The full report offers insights into Americans’ lack of confidence in their retirement plans. They feel like they’re “losing ground.” Worse, they aren’t sure how to keep up with inflation:

71% are very concerned about inflation’s impact on their retirement preparedness
31% aren’t sure how to keep up with inflation. As a result, many savers feel they’ve fallen behind

“With so much uncertainty in the world, people understandably have concerns on a variety of fronts, and ‘Are we there yet?’ has to be on the minds of many,” said Rita Assaf, vice president of Retirement at Fidelity Investments.

Uncertainty is a killer – it prevents us from making decisions, forces us to second-guess ourselves, cripples our planning. All too often, it’s easier to just give up and tell yourself, I’m getting a headache, so I’ll figure this out later.

And that later never comes.

Today, we’re going to do what we can to cut through the confusion and find what certainty we can.

Three ways to clear the fog

USA Today recently revealed three places to start looking for answers – not just to today’s questions, but tomorrow’s as well:

  1. Know how much income is needed to maintain your buying power. “assuming a normal inflation rate of around 3% per year, if you had $60,000 in income at 65, you’d need around $80,000 by 75 to maintain the same buying power.” In other words, don’t think in dollars, think in buying power. We covered this before in Why Saving $1 Million for Retirement Is Meaningless. (Inflation is currently 7.9%, which in this example means $80k wouldn’t cut it, and even $100k might still fall short if inflation keeps accelerating.)
  2. Accurately estimate how much Social Security will provide you in retirement. “Only 42% of Americans correctly identified the average Social Security benefit. And close to four in 10 overestimated the average.” The correct answer for 2022 is $1,657 per month. Consider setting up a My Social Security account, and refer to the SSA website for updated information. That’ll help ensure you aren’t unpleasantly surprised.
  3. Stay current on realistic retirement withdrawal rates. The USA Today article revealed a startling fact that “half of Americans weren’t sure how much they could safely take out of investment accounts without worrying about running out of money while still relying on it.” Worse, a significant percentage thought they could withdraw 10-15% per year to cover their retirement expenses. That’s far above Fidelity’s recommended 4-5% withdrawal rate.

Just to be clear, if you overestimate your safe withdrawal rate by 3x, your savings will last only 1/3 as long as you expect. And Fidelity’s 4-5% recommendation is one of the more generous. Morningstar thinks 3.3% is safe. Barron’s recommends 3%. Financial advisor David Macchia claims, “There is no ‘safe withdrawal rate.’”

Of course, even after you gain clarity about saving for retirement with all of the challenges abound in 2022, you need to stay vigilant. The standard safe withdrawal rate, in a vacuum, isn’t particularly helpful. They don’t account for inflation. They don’t anticipate sudden geopolitical (or personal) upheavals.

With so much that’s uncertain, where can we turn for something that’s the opposite?

One way to take back control

While it might sound trivial, having a solid retirement plan and reviewing that plan on a consistent basis can help you take back control of your financial future.

An insider publication for financial professionals teased out a key insight:

According to Fidelity, individuals with a plan in place:
> Feel more confident about being able to retire when and how they want (91%)
with a plan vs. 67% without)

> Are more likely to know how much money they’ll need to retire (84% with a plan vs. 56% without a plan) and when they want to retire (84% with a plan vs. 59% without)
> Are more likely to say they know what to do to keep up with inflation (77% with a plan vs. 57% without) and are less likely to say they plan to retire later due to the pandemic (16% with a plan vs. 29% without)

This insight makes a good case for starting a plan (if you don’t have one), or making sure you’re consistently reviewing and improving your established plan. As we’re currently experiencing the steepest inflation in a generation, it’s probably a good idea to see whether your savings are well-diversified with inflation-resistant investments. Knowing your savings are at least growing as quickly as your expenses can mean the difference between chronic financial worry and inner peace.

A well-rounded retirement savings strategy can include physical gold and silver. Take a look at how gold performs over time and whether diversifying your savings with these “safe haven” investments can help you achieve a stress-free retirement.

2022, Featured, retirement plan, retirement savings, safe haven