Retirement dreams fade as inflation persists, the market falters and prices rise

As more than 20 million Americans approach retirement age, estimates of the funds needed for a comfortable life after work have risen to just over $ 1 million, according to annuity.org.

But that number is far beyond the reach of most.

The average net worth of 47.8 million Americans currently aged 65 and over is just $ 170,516, according to the United States Census. This is supplemented with an average annual income of $ 38,515.

With inflation at 8.3% and global markets down, nearly three-quarters of Americans agree that the country is facing a pension crisis.

“2022 may be one of the worst years to retire in recent memory,” reads the Natixis Global Retirement Index’s 2022 report. “With markets falling, rates still relatively low and inflation taking a big bite out of retirees’ portfolios, those leaving the workforce run the risk of taking pension distributions from an already depleted asset pool.” .

US Federal Reserve Board Chairman Jerome Powell speaks during a press conference following a Federal Open Market Committee (FOMC) meeting at the Federal Reserve Headquarters on September 21, 2022 in Washington, DC. Powell announced that the Federal Reserve is raising interest rates by three-quarters of a percentage point.
Photo by Drew Angerer / Getty Images

Due to factors like rising food and energy prices, rising interest rates, debilitating healthcare costs, and cyclical debt, more Americans than ever are worried about their financial future.

According to a recent survey by GOBankingRates, about 20% of Americans between the ages of 55 and 64 said they delayed their retirement plans due to inflation.

Paul Dilda, head of consumer strategy at BMO Harris Bank, said this is an indication of a broader problem.

“We haven’t seen this level of inflation for a long time and it’s very disheartening,” he told CNBC, adding that many people of retirement age or nearing age may not have considered these price increases in their financial plans.

“It is difficult to save,” he added, “and these times are making it even more difficult.”

The increased difficulty of saving, coupled with a shrinking social safety net, has fundamentally changed the popular view of retirement, said Scott Jensen, certified retirement income professional and principal financial planning consultant at Country Financial..

Decades ago, an individual’s typical work / retirement plan might have been to work 40 years for a company and retire with a full company pension. But today only 17% of private companies offer a traditional pension plan.

And people are taking a much more active approach to retirement, prioritizing activities like travel, volunteer work, and pursuing extra hobbies. But without a pension to provide a consistent stream of income, the onus falls on the individual to organize a secure financial future.

“Nowadays, very few people have a pension that provides a stable and predictable income,” said Jensen. News week“so they need to be much more involved in the production, security and protection of their retirement income.”

Although this “active” approach has brought greater flexibility to American families, the long-term security of an American retirement is underwhelming compared to its international counterparts.

In the Netherlands, as well as in Denmark, Canada, Germany and the rest of the major industrial nations, public and private sector workers are covered by some sort of pension. However, most employees in America do not have access to an employer-sponsored retirement plan.

This is partly why the United States ranked 18th on a list of 44 countries that provide the “safest” pensions for their citizens on the Global Retirement Index.

In addition to the weakening of the social security system, America’s scores have been bogged down by poor job opportunities, high income inequality, and a relatively average quality of life for retirees. The pressures of medical debt and taxes have also been significant causes of financial insecurity.

Each of these factors was only exacerbated by the volatile economic environment of the past six months, which saw stock values ​​plummet as mortgage rates and consumer prices rose.

Considering this volatility, Jensen advises those approaching the end of their working year to approach retirement with care and caution.

“We know there will be positive return years and negative return years,” he said. “We just don’t know exactly when they will be. So, if you happen to be unlucky and experience a lot of negative returns during early retirement, you may be digging a hole you can’t dig out of.”

With inflation remaining stubbornly high at 8.3%, the Federal Reserve announced another 0.75 percentage point hike in the benchmark interest rate on Wednesday, in line with its June and July hikes. The benchmark interest rate now stands at 3.25%, more than four times higher than the 0.75% rate on May 1, just four months ago, according to forbes.com.

Jensen said these pressures increase the need for serious retirement planning. In addition to building a strong emergency savings bank, Jensen recommends that those approaching retirement years perform a detailed assessment of their financial situation.

“Whether it’s working with a financial professional or alone,” he said, “find out where you are and where you need to be.”

“Maybe you’ve seen an increase in the cost of living and a decrease in your account balances,” Jensen said. “If the combination of these hasn’t changed your likelihood of a successful retirement outcome, then well, you can move on and move on in light of these things.”

“But if that assessment reveals that things are not that rosy,” he cautioned, “then you should reevaluate and try to make some changes.”

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