Workers Say Inflation Is Bigger Retirement Obstacle This Year than Last

Kathryn Mayer By Kathryn Mayer August 15, 2023

​Inflation and market volatility are continuing to rock employees' retirement confidence and impact their ability to comfortably save for their post-work years—but employees are still funneling money into their employer-sponsored accounts, new research finds.

A significant 62 percent of workers see inflation as an obstacle to saving for a comfortable retirement, a big jump from 45 percent last year, while 42 percent say stock market volatility is an obstacle, up from 33 percent last year, according to new data from Charles Schwab. The financial services firm surveyed 1,000 U.S. 401(k) plan participants.

Nearly 8 in 10 respondents (78 percent) say these conditions are impacting their spending and saving habits, and 36 percent plan to delay retirement as a result. Meanwhile, 37 percent say they are very likely to achieve their savings goals, compared to 47 percent last year.

Although inflation has eased over the past year from its red-hot pace—the current inflation rate now hovers around a 3.2 percent hike year-over-year, well below the 9.1 percent it peaked at last summer—employees have weathered months of high cost of living and are reconsidering financial strategies and goals, said Marci Stewart, director of communication consulting and participant education for Schwab Workplace Financial Services.

"While the rate of inflation has started to come down, the compounding impacts of rising costs over time and still-high prices for many products continue to weigh on workers," she said. "It's no surprise that the persistence of these conditions has made workers second-guess their retirement prospects."

The survey is the latest in a string of studies that have raised red flags about retirement savings and confidence.

A report by Transamerica Center for Retirement Studies recently found that inflation and other concerns have prompted more than one-third of workers to dip into their retirement accounts.

And data out in April from the Employee Benefit Research Institute (EBRI) and research firm Greenwald Research found that both workers' and retirees' confidence in having enough money to live comfortably throughout retirement significantly dropped from 2022's numbers, falling to 64 percent from 73 percent among workers and to 73 percent from 77 percent among retirees. That's the biggest decline in confidence since 2008, said Craig Copeland, director of wealth benefits research at EBRI.

"The current economic climate—in particular, inflation—is eroding the confidence that Americans had in their retirement preparations going into the pandemic," he said.

But Charles Schwab's survey does offer a glimpse of good news: Workers are still contributing to their retirement accounts.

"Despite these challenges, retirement saving continues to be a priority for workers, who have maintained their 401(k) savings rates and largely stayed on top of their 401(k) investments over the past year," Stewart said.

That's a good thing, because employees believe they need more money for retirement: Workers say they'll need to save an average of $1.8 million, up from $1.7 million last year.

A continued focus on saving is likely a result of employees trying to hold on to some stability after years of volatility, Stewart explained.

"Since the pandemic, employees have experienced a lot of change in the workplace and uncertainty in their financial lives," she said. "As a result, employees are considering their current benefits more critically and are prioritizing long-term financial stability. The 401(k) plays a big role in that."

401(k) a Must-Have Benefit

The survey also offers an important message for employers looking to attract workers: The 401(k) is seen as a pivotal benefit. When considering a new employer, 88 percent of workers say it is a must-have benefit, and 3 in 4 would refuse a new job if it did not offer a 401(k) plan.

Meanwhile, the survey found that 71 percent of employed Americans were more likely to stay with an employer that offered an employer-sponsored 401(k), 403(b) or 457 retirement savings plan—a big jump from the 60 percent who said so in 2022.

That's likely, in part, because employees have high hopes that their employer-sponsored accounts will work for them in retirement more than Social Security: Workers surveyed expect their 401(k) to deliver 40 percent of their retirement income, which is double the next closest source, Social Security, at 20 percent of retirement income.

In addition to wanting a 401(k), employees are looking for more education and basic retirement help, the survey found. For example, they are looking for help with basic retirement planning needs like calculating how much they need in retirement and determining the age they can retire. They also want help understanding how certain provisions from the new SECURE Act 2.0 will affect their retirement plan. That's an important insight for employers to know, Stewart said.

"All of this information gives employers a window into what matters to workers and how they might adjust their benefit offerings to retain current employees and win over new prospects during the recruitment process," she said.



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