Rising Inflation Hits Retirement Savers Hard but Employers Can Help

inflation pinRising inflation has American workers on edge.  Amid rising inflation, many Americans have halted saving for retirement.  Nearly half of U.S. adults stopped putting money aside for their post-work years.  Rising inflation is a factor in the high cost of groceries, rent/mortgages, credit card debt, and utilities.  Unfortunately, one in three adults have tapped into their retirement savings to make ends meet.

This sobering data comes from a U.S. News & World Report “Retirement and Inflation” survey released in early January.  The findings emerge against the backdrop of the recent passage of the SECURE 2.0 Act, legislation designed to make retirement savings and financial stability more accessible to more Americans.  Post-pandemic concerns, rising interest rates and consistently higher inflation have caused the prices of nearly everything to go up in price.  As a result, many Americans are opting to spend and save less, including stopping contributions to their retirement accounts.

According to a recent Employee Benefit News article summarizing the survey results, “Stopping contributions to individual retirement accounts, 401(k)s or brokerage, or savings accounts can have a deleterious effect on financial well-being down the road.  A 30-year-old with $50,000 today in her employer-sponsored retirement plan who saves $400 a month would have nearly $920,000 by age 65, assuming a conservative long-term return of 6%.  Stop contributing for five years, and the pot dips more than 27% to under $667,000.”

Additionally, tapping into retirement savings to pay bills and meet other daily financial obligations erodes the asset and future appreciation of existing plan assets.  These actions may also introduce taxes.  It may cause workers to get hit with tax bills due to investment gains and early distributions.  Still, many Americans are plagued with financial stress.  A December Gallup poll, cited in another Employee Benefit News article, found that 55% of Americans are experiencing financial hardship due to rising costs, with 13% citing the impact on their finances as “severe.” 

Employers can help combat some of the effects of rising inflation by offering benefits that provide employees opportunities to improve their financial stability and overall well-being.  Beyond salary increases, employers may consider offering discounted childcare, virtual care and telehealth services, and basic financial planning tools to help employees take care of themselves and try to get ahead money-wise. While offering these benefits may impact employers’ budgets, there are low-cost solutions available.  Failing being able to provide new benefits, employers can offer education and increase awareness around existing offerings to help employees make the most of what’s available to them.  Remote work arrangements are another opportunity for employers to save money and provide flexibility for workers. 

Workers value the ability to achieve greater work-life balance, especially in the wake of the Covid-19 pandemic.  Whatever employers can do to support employees and show them they’re making an investment in their well-being is a win, including offering benefits to help them manage rising inflation and continue to set money aside for the future.


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