The current inflationary environment is derailing the retirement plans of most Americans. A new GOBankingRates survey found nearly three-quarters of Americans said inflation is affect their plans in some wayfrom how they invest to when they plan to retire.
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30% of Americans are trying to save more for retirement
The most common response to inflation when planning for retirement is to make an effort to save more, with 30% of Americans saying they are now trying to save more money for the long term. This way of coping with inflation was particularly common among younger respondents, with 41% of 18-24 year olds and 33% of 25-34 year olds saying they are now trying to save more for retirement.
The survey also found that women are more likely than men to make efforts to save more for retirement – 32% of women compared to 27% of men said they were trying to save more.
If you’re able to save more, that’s an effective way to hedge against inflation, said Clark Kendall of Kendall’s Capital in Rockville, Maryland.
“Save more than you think you need,” he said.
It might be worth making sacrifices now to better prepare your finances for the long term, said Anessa Custovic, Ph.D., chief investment officer at Cardinal Retirement planning.
“If possible, try to spend less and save for the future,” she said. “It is not clear when inflation will peak or when we will see a deceleration in housing/rent or food prices. The only way to cover this is to save more.
For those who want to save more, Custovic recommends automating the process.
“Automatically take a certain amount from your paycheck and put it into a savings account,” she said. “If you can, try to get a high-yield savings account. Now is not the time to let a large sum of money sit around to barely make any money. There are a few banks that offer fairly competitive savings rates without having to lock in your money.
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20% of Americans are delaying their retirement plans
A fifth of Americans said they are delaying their retirement plans because of inflation. Fortunately, this does not appear to be the case for those who have already reached the traditional retirement age – only 6% of those aged 65 and over reported postponing retirement. However, 19% of those approaching retirement age — Americans between the ages of 55 and 64 — said they were delaying their retirement plans.
Delaying retirement in these current inflationary times is understandable, said Rosanna Guardavaccaro, financial planner at Barnum Financial Group.
“Prices of goods and services have mostly risen sharply and there are some benefits to continuing to work,” she said. “Of course, if you can continue in your same job, you will receive roughly the same amount of money. If your company has a mandatory retirement age, you can take the skills learned on the job and propose them to other organisations.
In addition to allowing you to earn more money to invest in retirement savings, postponing your retirement also has Social Security benefits.
“Social Security calculates your monthly benefit using your 35 highest earning years until age 70. If you continue to work and contribute to Social Security, your earnings record will be constantly updated,” Guardavacaro said. “If the money you earn in subsequent years exceeds what you earned earlier, your benefits will increase accordingly.”
11% of Americans change their investment strategy
More than one in 10 Americans said they change their long-term investment strategy to take inflation into account. Younger respondents were the most likely to change their retirement investment strategy, with 14% of Americans aged 18-24 and 13% of Americans aged 25-34 saying they were making changes.
The survey also found that men were more likely to change their long-term investing strategy than women – 13% of men and 8% of women said they were making changes.
If you’re making changes to your investment strategy, Kendall recommends using cost averaging if you’re not already doing so.
“Dollar cost averaging means dividing the total amount to be invested between periodic purchases of a target asset, which helps reduce the impact of volatility on an investment,” he said.
Kendall also recommends investing in dividend-paying stocks and maintaining a diversified portfolio.
“Dividend-paying stocks such as IBM, Johnson & Johnson, Procter & Gamble and Kellogg are great ways to protect long-term purchasing power,” he said. “Diversify your portfolio with short-term investments – eg, CDs, money market accounts and high-yield savings accounts – for short-term needs and long-term investments – eg, a 401 (k) or a TSP, if you have access to one, or a Traditional IRA or Roth IRA for long-term needs.
8% of Americans now plan to work part-time in retirement
For some Americans, their plans to stop working altogether in retirement have been affected by inflation. Eight percent of survey respondents said they now plan to work in retirement when they weren’t before. This response was most common among people aged 65 and over – those most likely to be already retired – with 14% saying they now plan to work in retirement.
While this may be a change of plans for some, it’s not necessarily always a bad thing.
“Many people have found [working part-time in retirement] quite satisfactory,” Guardavacaro said. “They might do similar work to what they’ve done before or do something new that they find challenging.”
5% of Americans are considering moving to a more affordable location
Where you live can greatly affect your cost of living, which is why 5% of Americans said they plan to fight inflation in retirement by moving to a more affordable place. This response was most common among people approaching retirement age, with Americans aged 55 to 64, with 7% saying they planned to move to cut costs.
“Moving to a location with lower living expenses can go a long way toward maximizing your retirement savings,” said Andrew Latham, Certified Financial Planner and Chief Content Officer at SuperMoney.com. “For example, imagine you live somewhere where your living expenses are $50,000 a year and you have $800,000 in retirement savings. Assuming your portfolio grows by 5% and inflation increases by 3%, you will run out of money after 19 years. However, your savings could last 25 years if you move to a location where your living expenses are $40,000 per year.
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Methodology: GOBankingRates surveyed 997 Americans ages 18 and older across the country between August 9 and August 11, 2022, asking 16 different questions: (1) How much money have you currently saved for retirement? ; (2) How much money do you think you will need to retire? ; (3) Realistically, at what age do you want to retire? ; (4) At what age did you start saving for your retirement? ; (5) What worries you financially about retirement? (Select all that relate to it.); (6) Do you plan to work in retirement? ; (7) What assets do you have in your retirement portfolio? (Select all that relate to it.); (8) What is the impact of current inflation on your retirement plans? ; (9) How much of your retirement do you plan to finance with social security? ; (10) What do you think of the future of Social Security when you retire? ; (11) What percentage of your salary do you currently invest for your retirement? ; (12) Do you plan to move after retirement?; (13) Where is your ideal place to retire? ; (14) What government programs do you plan to use for your retirement? (Select all that relate to it.); (15) Do you have a pension plan?; and (16) How much do you think the average American has saved when they retire? GOBankingRates used PureSpectrum’s survey platform to conduct the survey.
This article originally appeared on GOBankingRates.com: Inflation 2022: 74% of Americans’ retirement planning has been affected, new study finds