Although inflation has fallen from the height of dizziness in 2022, Americans still view it as the best obstacle to saving for retirement, studies show.
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Although inflation fell from the dizzy 9.1% rate in 2022, Americans are still worried that price increases will prevent them from leaving comfortably, a new survey by Charles Schwab showed.
Inflation is the biggest obstacle to comfortable retirement, saying it added 57% of 1,000 US 401(k) plan participants as well as participants in the 100 Gen Z plan surveyed last spring.
Many Americans have found ways to continue saving, but even so, only 34% of participants feel that they are very likely to achieve their savings goals, according to the survey. That’s down from 43% in 2024, Schwab said.
“401(k) investors continue to face uncertainty,” said Lee McAdoo, managing director of Schwab Retirement Planning Services. “Inflation and market volatility remain the best in mind that can make developing long-term retirement strategies difficult.”
How do Americans still save?
Most Americans cut their spending to prioritize retirement savings, Schwab said. Four in ten people are purchasing cheaper products (39%) to reduce the number of purchases they purchased and maintain their 401(k) donations. Research shows that only 11% of respondents reduced their 401(k) contributions due to the economic situation.
Furthermore, the survey shows that 401(k) loans and difficult withdrawals have fallen to 21% from 26% in the previous year.
“It’s encouraging to see that most savers prioritize consistency in terms of contribution rates and largely avoid penetration into retirement savings,” McAdoo said. It is a “positive sign that they are focusing on their future.”
How much do you think Americans need to retire?
“We’ve seen a lot of experience in our client experiences,” said Marci Stewart, Director of Client Experience at Schwab Workplace Financial Services.
The decline comes from fewer survey respondents who are expected to require more than $1 million, Stewart said.
“Part of that is people who adjust to high-cost environments by tightening their spending,” she said. “While they tighten their spending belts, they may decide that there is less need for retirement.”
On average, workers are also hoping to retire at age 66, and believe their savings will last 22 years after retirement, the survey said. Generation Z, or those born between 1997 and 2012, expect to retire even younger at an average age of 62.
“I believe they have good reasons to be optimistic,” Stewart said. They have more time to invest and are putting more effort into finances compared to their older generations of contemporaries.
Young workers also have access to more resources as they begin their careers, including personalized financial planning advice through a 401(k) plan that can provide solid long-term plans to achieve their goals, Stewart said.
Why is 401(k) saving so important?
Schwab said that as savers are declining in Social Security, savers are increasingly dependent on workplace plans for retirement income.
Half of consumers aged 45 to 75 (52%) have little confidence in social security, according to a survey released this month by the non-profit consumer education institution The Alliance for Lifetime Income (ALI). Ali surveyed 3,502 consumers aged 45-75. This collected results from 500 financial experts, weighed in by age, gender and region to represent the census demographics.
Furthermore (58%) would reduce social security benefits, Ali said.
According to an analysis by the Responsible Federal Budget Commission, double-earning couples who retired in early 2033 can expect annual Social Security benefits benefits, on average, $18,100 less than they would if they had retired. That’s a 24% drop, according to a non-profit think tank.
How do employers help?
About a third of those surveyed said their company had increased their pay, Schwab said. Another 15% said they received a higher 401(k) match, with additional bonuses or benefits cited by 14% of participants surveyed respectively. The most special benefits from employers were health savings accounts, Schwab said.
“We see employers play an important, expanding role in our employees’ financial lives,” Stewart said.
On average, survey participants estimated that 401(k) provides 45% of their retirement income, an increase of 2% from last year. Social Security is expected to donate 18% to retirement income, an increase of 2%.
Medora Lee is a money, market and personal finance reporter for USA Today. mjlee@usatoday.com and Subscribe to our free daily money newsletter Personal finance tips and business news every Monday to Friday.
