Workers Remain Worried About Inflation’s Impact on Retirement

A recent study from Schwab Retirement Plan Services says inflation is now the top obstacle to saving for a comfortable retirement, which has prompted many employees to change their financial habits and seek advice on steps they should take.

According to Schwab’s “2022 Participant Study,” workers rank inflation ahead of other retirement planning obstacles, with 45% saying inflation is a major obstacle today. This is substantially higher than those who cite monthly expenses (35%), stock market volatility (33%), unexpected expenses (33%), credit card debt (24%) and saving/paying for children’s education (21%).

“Workers have been through a lot over the past two years and it’s only natural that recent economic and geopolitical turbulence has continued to fuel financial concerns,” said Catherine Golladay, head of Schwab Workplace Financial Services, in a press release. “While plan participants can’t control inflation or the markets, the good news is they are taking steps to manage their finances with an eye to the future.”

Just under half (47%) of workers feel they are very likely to meet their retirement savings goals, compared with 53% from last year, the study says. The percentage of those who feel somewhat likely to meet their goals increased from 39% to 40%, while those who feel unlikely to do so increased from 8% to 13%. On average, workers think they need $1.7 million saved for retirement, down from $1.9 million a year ago.

Inflation has clearly come for workers’ wallets, however: 79% of respondents said they have had to reduce spending as well as their savings, per the study. Workers are cutting spending by reducing the number of purchases they make (34%), buying cheaper products (32%) and paying off debt more slowly (21%).

In general, the study says, workers are saving less and spending more. They are saving less in their emergency funds, investing less outside of their 401(k)s and contributing less to their 401(k)s.

One-third of plan participants do not know how long their savings are likely to last, but for those who do, the average expectation is 23 years, the study says. One-quarter of respondents said the pandemic will delay their retirement.

As workers have had to worry more about their financial situation, stress has had an impact on some, the study says. Only 15% of employees said they have not been under financial stress, and more than a quarter of respondents (26%) said stress about their financial situation has affected their ability to do their job in the past year.

The majority of employers (60%) took action to help workers manage financial stress. Help came in various forms, including increased pay (32%), increased 401(k) matching (23%) and additional bonuses (20%). Some employers also decreased hours to allow for better work-life balance (11%).

Most workers said that financial advice would increase their confidence. More than half (55%) said they would be very confident making 401(k) investment decisions with the help of a financial professional, compared with just 38% who said they are very confident making 401(k) investment decisions on their own.

Workers expressed a desire for specific advice on a range of financial questions, such as how to invest their 401(k) (43%); how much money to save for retirement (42%); how to create an income stream in retirement (38%); at what age they can afford to retire (36%); what tax expenses in retirement will be (32%); what other expenses in retirement will be (31%); how to manage current expenses to save more money for retirement (30%); how to catch up on retirement savings goals (28%); and how to manage debt (26%).

However, workers see barriers to accessing advice through their workplace plan, and many don’t receive such advice, the study says. They cited cost (23%), advice limitations (22%), lack of awareness (19%) and confidentiality concerns (18%) as reasons they wouldn’t seek financial advice via their employer.

“Workers are facing an array of economic challenges that are driving their demand for financial advice. Employers can help by debunking misconceptions about financial advice available through the workplace,” said Golladay. “Many employers offer different levels of advice at no additional cost or low cost, and workers tell us making 401(k) investment decisions with the help of a financial professional would make them more confident, which is one of the most important factors in their financial well-being.”