Inflation, Student Loans Continue to Be Stressors for Participants Heading Into 2024

Because of inflation, rising interest rates and other concerns around the cost of living, more Americans said they were more stressed at the end of 2023 than they were a year earlier, according to Allianz Life’s 2023 New Year’s Resolutions Study. 

Despite the fact that 29% of the 1,005 Americans surveyed reported getting a pay increase from a raise or from changing jobs in the last year, among those who received a pay increase, 73% said their pay still is not keeping up with inflation. 

In addition, 23% said they put off making a big purchase, like a house or a car, due to rising interest rates, and 69% said they are concerned that the rising cost of living will affect their ability to save as much for retirement as they should.  

“Inflation has gone down and some prices have gone down, but they did not go down to pre-inflation levels,” says Kelly LaVigne, vice president of consumer insights at Allianz. “So, everything is more expensive and wages did go up, but not enough to keep up with those increased prices.” 

Student Debt Causing Financial Stress 

Student loan debt is also a major factor impacting workers’ long-term financial outlook and likely contributing to stress in 2024. According to Allianz, 82% of those surveyed said having to restart paying student loans will make it hard to make ends meet, and 66% said they have had or will have to reduce retirement contributions to restart student loan payments. 

According to the survey, about one in five Millennials said they restarted paying federal student loans in 2023. 

“There are going to be so many people who have to start repaying student loans [and] that’s going to be a big drain on their current budgets,” LaVigne says.  

He adds that the optional student-loan-matching provision in the SECURE 2.0 Act of 2022, which is now in effect, is an opportunity for plan sponsors to help younger workers who are paid less than senior workers and are struggling with student debt. Under the matching provision, plan sponsors are permitted to count an employee’s student loan repayments as matching contributions under most defined contribution plan types, enabling the employee to claim the employer’s matching contribution to the retirement plan. 

“Being able to still save for the future while you’re paying off your debts is one of the best ways to be successful for retirement,” LaVigne says. “So, if you’re in your thirties and your company is matching your student loan payments, or at least a portion of your student loan payments in your 401(k), … that’s a great way to alleviate a little bit of stress that savers might be feeling.” 

Emphasis on Emergency Savings 

According to the survey, Americans overall said they could improve their finances in 2024 by building up an emergency fund, paying down credit cards and increasing their retirement savings.  

LaVigne argues that the emergency savings provisions outlined in SECURE 2.0, which are also now in effect,  “sound good on paper,” as they allow participants to put money into a Roth-like account and it can grow tax-free and be withdrawn whenever a person needs it. However, LaVigne says it will be difficult for plan sponsors and their recordkeepers to administer. 

“I think most plan sponsors are going to find that it’s going to be difficult to add that provision simply because their systems weren’t built to enable an account like that,” LaVigne says. 

LaVigne compares the situation to another provision in SECURE 2.0 that allowed SEP IRA participants the choice of contributing to a Roth account, which began in 2023. SEP Roth IRAs are funded with after-tax dollars, so withdrawals made after age 59½ would not be taxed. The provision offered an opportunity for small employers, who did not have a 401(k), to offer a Roth account, but LaVigne says it takes a while to administer this kind of change and build the account into the employer’s system.  

Some employers have already implemented their own emergency savings benefits, such as insurance provider Unum Group and Delta Air Lines.   

Mitigating Risk in Retirement 

The Allianz report also points out that more than one in five Americans who are currently employed say they plan to retire in 2024. This is up from 17% in 2022. For Baby Boomers who are currently working, 31% said they are likely to retire this year, up from 25% in 2022. 

In order to mitigate risk in retirement, 34% of respondents said they will downsize their current spending, 23% will put money in a financial product that would protect retirement savings from market drops and 21% said they will develop a plan to address the rising cost of living in retirement. 

LaVigne explains that the five years before a person retires and the first five years of retirement are a critical period for people to mitigate risk. LaVigne says it is important for pre-retirees to invest in vehicles that are going to keep up with or get a little bit ahead of inflation. 

“That’s why some of the newer products… like the fixed index linked annuities or the variable index linked annuities that have these buffers in them can now be put into plans,” LaVigne says. “[These] are going to give you better returns than say money market funds [or] one of the more conservative bond funds, and you’re going to have protection down the road. That’s kind of the best of all worlds.” 

Allianz conducted its New Year’s Resolutions Study online in November 2023 with a nationally representative sample of 1,005 respondents age 18 and older.