Are Retirement Savings on the Chopping Block?
America is experiencing an inflationary period not seen since the 1980s. This has resulted in households having to cut spending and adjust their budgets to cope with the rapidly rising prices of everything from gas to groceries.
Gas prices jumped 18 percent from February to April, yet spending at gas stations rose only half that much. That indicates that people are driving less or putting fewer gallons of gas in the tank when they do fill up.
The same pattern is emerging at grocery stores. Prices are rising but purchases are not keeping pace with the percentage rise. So, once again the conclusion is that Americans are buying less than they were before. Dining out, driving less, not taking a vacation, and canceling a subscription service top the list of items that are on the chopping block if prices continue to rise.
Retirement Savings
According to a recent Voya survey, 66 percent of Americans are worried about inflation affecting their ability to save for retirement It can seem counterintuitive to take money out of your budget now when inflation is already causing spending cuts and affecting your purchasing power.
If you’re still working and saving for retirement, while it may be tempting to cut back on your retirement contributions or even dip into those savings to bolster your budget, this is not a wise choice.
“It’s vital to stay focused on your long-term financial goals and not react to every change in the economy or the marketplace,” advises Robert Cavanaugh, Senior VP Investments for David Lerner Associates. “A steady plan based on the sensible middle ground of investing is what gets you there in the end.”
The younger you are, the less impact this inflationary period will have on your retirement funds. There is still ample time for your income to catch up and inflation won’t last forever. The Federal Reserve has raised interest rates in an effort to curb rising prices.
Financial Literacy and Inflation
This is the perfect time to learn more about how money and financial markets work. Understanding how inflation works, what is causing prices to rise, and what that means in terms of interest rates and compound interest on savings, will give you insights into how to cope with this financial situation. When you fully understand these forces, you can make sound, considered, decisions based on good financial information rather than panic and reaction to the immediate situation.
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
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Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC.