Inflation Slowing Workers’ Retirement Saving

Workers are experiencing rising inflation as the top hurdle to saving for retirement, Charles Schwab data show. 

The Charles Schwab 2022 401(k) Participant Study shows that 45% of workers called inflation an obstacle to saving, ahead of budgeting for monthly expenses (35%), stock market volatility (33%) and unexpected expenses (33%).

“Workers have been through a lot over the past two years and it’s only natural that recent economic and geopolitical turbulence has continued to fuel financial concerns,” Catherine Golladay, head of Schwab Workplace Financial Services, stated in a release. “While plan participants can’t control inflation or the markets, the good news is they are taking steps to manage their finances with an eye to the future.”

Schwab data show that workers believe they will need to save an average of $1.7 million for retirement, down from the $1.9 million that was reported in last year’s survey, and 47% of participants are confident they are very likely to reach their retirement savings goals. Workers expect 401(k) savings to be their primary financial resource in retirement and provide 37% of income, followed by Social Security, which they expect will account for 17% of income, according to Schwab’s research.   

Because of inflation, rising costs and market volatility, workers have begun to alter how they save, spend and invest, data show. Schwab found that among the workers surveyed, 79% are changing their saving and spending patterns, while 44% have changed their 401(k) investments.

Workers are reducing spending by limiting purchases (34%), buying cheaper products (32%) and paying off debt incrementally (21%); they are also saving less for emergencies (20%), investing less outside of their 401(k) (18%) and lowering contributions to their 401(k) (15%), the study found.

Just under one-quarter of plan participants, or 24%, said the COVID-19 pandemic is delaying their expected retirement date. One-third of respondents do not know how long their savings are likely to last in retirement, and the two-thirds who offered an estimate said they expect their retirement savings to last 23 years on average.

Employers are addressing financial stress among workers, recognizing that financial strain affects employee’s mental health, the survey found.

“Many workers say their employers have helped them manage financial stress in the past year,” Golladay said in the release. “With talent management top of mind for so many employers, demonstrating support for employees through tough times plays a key role in both loyalty and recruitment.”

Schwab data show that 15% of employees said they have not been under financial stress, and 26% said stress about their financial situation has affected their job in the past year.

Survey data was gathered online from 1,000 U.S. 401(k) plan participants ages 21 to 70.

The survey was conducted by Logica Research for Schwab Retirement Plan Services, Inc. Respondents were actively employed by companies with at least 25 employees, and were not asked to indicate whether they had 401(k) accounts with Schwab Retirement Plan Services. The study was conducted this year from April 4 to April 19.