Financial Fitness

Inflation Is Impacting Short-Term Spending & Saving

Anxiety about inflation results in $243 less per month toward savings, but 72% of Americans expect to retire at their desired age

New York Life Wealth Watch survey reveals that workplace resources and access to 401(k) plans remain crucial to keeping retirement on track. For a more in-depth look at the New York Life Wealth Watch survey findings, click here to access the supplemental datasheet.

NEW YORK–(BUSINESS WIRE)–The latest New York Life Wealth Watch survey revealed that while inflation is impacting short-term financial decisions, Americans report that their retirement strategies remain largely intact. In fact, 65% of adults report that as a result of inflation, they are cutting back on short-term spending to stay on track with their long-term financial goals. One-in-four respondents report that their long-term financial strategy has not been impacted due to inflation and 72% of respondents still expect to retire at their desired age.

“Inflation risk is one of the ‘big four’ risks in retirement – alongside withdrawal rate risk, longevity risk, and the risk that the timing of investment returns negatively impacts how long a portfolio lasts – but it is the least talked about because we’ve been in a protracted low-interest rate environment,” said Dylan Huang, SVP and Head of Retirement and Wealth Management Solutions, New York Life. “For those currently retired, inflation risk is very real and will impact both how much retirees can withdraw from their portfolio and their lifestyle in retirement. Among those not yet retired, we’re seeing this group making necessary adjustments to their financial strategies while not allowing short-term anxiety to derail their plans for retirement.”

Americans are making changes to their spending habits to maintain or increase contributions to their retirement savings. Respondents say they are cutting back on social activities like eating out (35%), nightlife (31%) and travel (28%), though some report holding off on larger expenditures like home renovations (16%) or having more children (13%).

Adjusting Financial Strategy

Although Americans report being committed to maintaining their retirement savings contributions, they have also adjusted their short-term financial goals to accommodate the impacts of inflation. In fact, one-in-three adults report contributing less to their emergency funds in order to pay for everyday expenses, with the average monthly contribution falling by $243.

Millennials are making the most significant cuts, with their monthly emergency fund contributions falling by nearly $289. Beyond stalled emergency fund savings, Americans are also putting off vacations (33%), paying off credit card debt (22%), buying a car (22%) and buying a home (16%). Here too, Millennials are feeling the impacts of inflation on their short-term financial goals: 36% report delaying vacation, paying off credit card debt (29%), buying a car (26%) and buying a home (26%).

“Creating a financial strategy is not something that should be done once and never thought of again until retirement. Ever-changing market environments can sometimes mean making difficult choices, as evident by the data showing Americans are contributing less to their emergency funds,” continued Huang. “That’s why it’s critical to seek the help of a trusted financial professional to ensure that your financial strategy can withstand a variety of market conditions and enables you to achieve your short- and long-term financial goals.”

Workplace Plans Help Keep Retirement on Track

Despite the immediate impacts of inflation on Americans’ wallets, retirement planning remains top of mind. When asked what prompted them to begin preparing for retirement, both retirees and non-retirees report access to resources through their workplace and feeling they were at the right age to begin preparing as top factors. About two-in-five retirees said that they started preparing because their job provided resources (40%) or they felt they were at the right age (38%), while almost half (45%) of non-retirees said they started preparing because their job provided resources, and 37% said they began preparing because they felt they were at the right age.

For those currently retired, inflation risk is very real and will impact both how much retirees can withdraw from their portfolio and their lifestyle in retirement...

When looking at ways retirees and non-retirees save, over half (52%) of respondents said their employers offer a 401(k) plan and match a certain percentage of contributions, with 44% reporting they contribute to reach the employer match. More than two-in-five respondents are also choosing a traditional IRA – with 42% of respondents reporting this as a savings vehicle.

“For many Americans, the workplace is their first exposure to retirement savings education. While it’s heartening to see a significant percentage making 401(k) contributions and taking advantage of an employer match if it is offered, this is just the first step toward building a financial strategy that can sustain living 30 years or more in retirement. The partnership of a trusted financial professional can help put these resources into the context of a broader financial strategy,” said Huang.

Additional findings from New York Life’s Wealth Watch survey include:

When it comes to retirement, starting early is key

  • Retirees said they started preparing for retirement (on average) at age 42, and that they started prioritizing retirement at age 45.

42% of retirees said they started prioritizing retirement because they felt they were at the right age, followed by about one-in-three (32%) who said they started because their job provided resources.

  • While 37% of retirees said they are happy with the age they started preparing for retirement, about half (46%) said they wished they had started earlier, at an average age of 30.
  • Similarly, 38% of retirees said they are happy with the age they started prioritizing retirement, while 43% said they wished they had started earlier, at an average age of 33.

 

 

 

About Wealth Watch
Wealth Watch is a recurring survey from New York Life that will track Americans’ financial goals, progress toward those goals and feelings about their ability to secure their financial futures, identifying key themes and trends that are emerging about topics like retirement planning, the role of protection-oriented solutions and the importance of financial guidance.
Survey Methodology
This poll was conducted between March 23 and March 25, 2022 among a national sample of 4,416 adults. The interviews were conducted online and the data were weighted to approximate a target sample of adults based on gender, educational attainment, age, race, and region. Results from the full survey have a margin of error of plus or minus 2 percentage points.
About New York Life
New York Life Insurance Company (www.newyorklife.com), a Fortune 100 company founded in 1845, is the largest mutual life insurance company in the United States1 and one of the largest life insurers in the world. Headquartered in New York City, New York Life’s family of companies offers life insurance, retirement income, investments and long-term care insurance. New York Life has the highest financial strength ratings currently awarded to any U.S. life insurer from all four of the major credit rating agencies2.
1 Based on revenue as reported by “Fortune 500 ranked within Industries, Insurance: Life, Health (Mutual),” Fortune magazine, 6/1/2021. For methodology, please see https://fortune.com/fortune500/.
2 Individual independent rating agency commentary as of 9/30/2021: A.M. Best (A++), Fitch (AAA), Moody’s Investors Service (Aaa), Standard & Poor’s (AA+).