As consumer prices rose at historic rates last year, many wealth management experts warned that they would eat into retirement savings. Now two studies have confirmed this dire prediction— and the damage is deep.
For workers still saving for retirement, inflation took a big bite out of their nest eggs. In 2022, 25% of U.S. workers cut back on their retirement savings because of higher costs for goods and services, according to
"That's a shocker," said Surya Kolluri, head of the TIAA Institute, the insurer's research division.
For those who had already retired, inflation sapped finances as well. The Senior Citizens League, a Virginia-based advocacy group,
"It's putting a tremendous strain on people," said Mary Johnson, a Social Security policy analyst at the League. "Retirees exhaust retirement savings as they age, but it looks like inflation has speeded up the process."
Last year, prices soared at rates not seen in a generation. In June 2022, the 12-month increase in the Consumer Price Index reached 9.1%, according to the
But there are many ways to measure — or experience — inflation, and for many Americans, it doesn't yet feel like the storm has passed. Food prices, for example, are still rising at 8.5%, and housing costs are still climbing at 8.2%, according to the same BLS data for March.
As a result, many Americans are struggling to make ends meet. TIAA found that in 2022, 39% of workers didn't have enough savings — apart from their retirement plans — to cover one month of expenses. That's a significant jump from 2021, when only 32% said so.
And even if inflation continues to cool, last year's cutback in retirement savings is likely to have long-term consequences.
"That's money that wasn't saved, so it's not there, it's not growing," said Paul Yakoboski, a senior economist at the TIAA Institute. "It's just lost."
Another example of this long-term damage is debt. In January 2022, 20% of workers told TIAA their debts "prevented them from adequately addressing other financial priorities." In January 2023, after a year of bruising inflation, that number rose to 26%.
For Americans already in retirement, the picture was similar. The Senior Citizens League asked its respondents — 97% of whom collect Social Security — whether they'd carried debt on a credit card for more than 90 days. In 2022, 35% had answered "yes." In 2023, 45% did — the highest percentage the survey has ever recorded.
"There's a tremendous increase in the number reporting they're carrying a balance longer," Johnson said, adding that interest rates are at historic highs. "This is not the time to be doing that!"
Can retirement savers bounce back? Kolluri thinks they can, but they'll need help from their wealth managers.
"When somebody navigates their life journey, the most important thing that they can get is advice and counsel from a financial advisor," Kolluri said. "And of course, in that financial journey, inflation plays a pernicious role."
There are
And even as the market remains rocky, some wealth managers recommend doubling down on stocks. Over the very long term — though not always — the U.S. stock market has tended to outpace inflation, and dividends can be used to cover rising expenses.
"It doesn't matter if you are retired or more than 20 years from retirement," said Nicholas Bunio, a certified financial planner at
Most important of all, advisors can help clients think realistically about inflation. With more information and guidance, investors can budget for rising prices in their daily lives and account for it in their retirement planning.
"Clients always need to build a buffer into their retirement projections, exactly for situations like this," said Laurie Allen, a certified financial planner and the founder of
