Being a middle-class worker in America is tough, especially if you’re planning for retirement. With inflation eating away at every dollar, nearly half of middle-income earners are in dire straits and are having to cut or stop their contributions to retirement.
A recent survey by Primerica found that 46% of these workers are struggling to maintain their retirement savings due to the continued rise in the cost of living.
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Just look at the numbers: The consumer price index jumped 3.4% annually through April 2024. And it’s not just stuff: Food and shelter are getting more expensive every day. No wonder 67% of middle-income families say their paychecks don’t cover the basics, and 36% have more credit card debt than emergency savings.
The implications of cutting retirement contributions are alarming. If someone skips a $3,000 annual contribution—over 30 years, they could miss out on as much as $25,000, assuming a 6% return. For people with 401(k) plans, the hit could be even greater. Vanguard’s 2023 report found that 95% of these plans included employer contributions. So if someone stops contributing, they’re missing out on their savings and whatever their employer may have contributed, potentially doubling the loss to about $50,000.
See also: The number of 401(k) millionaires is up 43% from last year — Here are three ways to join the club.
Inflation is not only a short-term headache, but also a long-term threat, especially for those looking to retire. Even a “mild” 3% inflation rate can erode the purchasing power of a retiree’s savings. A million dollars today may only buy what $744,000 will in ten years if inflation continues at that rate. That’s why it’s crucial to save and invest in ways that can outpace inflation.
There may be a silver lining. If inflation cools, people could find some extra money to put back into their retirement accounts. And with the Federal Reserve potentially cutting interest rates, borrowing could become cheaper, giving households some much-needed breathing room. Still, there’s little hope: Only 21% of respondents believe their financial situation will improve in the coming year.
Trending: Do you know how many Americans retire with $1,000,000 in savings? The percentage may shock you.
What’s the plan for middle-class workers facing this uphill battle? For starters, talking to a financial advisor can help you create a savings strategy that’s tailored to your individual needs. Looking into side hustles can also provide an extra financial cushion for immediate expenses and retirement savings. And of course, making savings a priority, maximizing retirement contributions and diversifying investments are important steps to keeping the retirement dream alive.
The U.S. retirement landscape has undergone some major changes. Traditional pension plans have all but disappeared, and Social Security is no longer a safe bet for the long term. As a result, many rely on 401(k) plans, but they are not universally used, even though they are available to most private sector workers.
All in all, the combination of high inflation, stagnant income growth and changing pension structures is making it harder than ever for middle-class workers to plan for their golden years. It’s a challenge, but with a few smart strategies and a little hope, it can be tackled head-on.
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This article Survey shows 46% of middle class workers are halting or reducing their retirement contributions due to continued cost of living increases originally appeared on Benzinga.com
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