Americans who have been saving for retirement for the past five years had to pause on their savings goals because of inflation and the "skyrocketing" cost of living, a recent survey said.
Half of Americans said they had to pause retirement contributions at some point during 2022 to deal with rising costs and 41% said they entirely stopped saving, according to a U.S. News & World Report 360 Reviews survey. Another 32% reported tapping into their retirement savings to keep up with inflation.
Last year the Fed raised the federal funds rate to a targeted range of 4.25% to 4.5%, the highest level in 15 years, as it looks to bring inflation to a 2% target rate. Higher interest rates have also meant higher consumer borrowing costs, with things like credit cards and auto loans becoming more expensive.
"The survey data shows a clear correlation between the rise of inflation and Americans’ delayed or altered retirement plans. Americans continue to worry about the future repercussions of the COVID-19 pandemic," 360 Reviews senior insurance editor Scott Nyerges said in a statement.
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Most Americans said they had a positive outlook on where the U.S. economy is headed and 57% said they believe it will improve by the end of 2023, according to the survey.
However, 43% believe things could worsen, with 82% saying "they are worried about a future recession affecting their retirement plans and savings."
Economists warned that while inflation is softening, the next shoe to drop for the U.S. economy is an economic slowdown fueled by an increase in job losses and a retraction in economic growth. The Conference Board predicted a 96% likelihood of a recession in the U.S. within the next year and forecasted that GDP will contract during the first three quarters of 2023.
GDP increased by 2.9% in the fourth quarter of 2022, according to the Bureau of Economic Analysis (BEA). Nonetheless, the Conference Board predicts growth will slow to 0.2% in 2023 before rebounding to 1.7% in 2024.
"The U.S. economy, and the U.S. consumer, have been defying expectations," the conference board said. "U.S. consumer spending continued to support GDP growth despite the dual headwinds of rising interest rates and high inflation. However, we still expect that the U.S. economy will fall into recession soon."
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Some Americans fear that the latest Social Security cost-of-living adjustment (COLA) could deplete social security funds more quickly, meaning that respondents could receive reduced benefits when they retire, according to the survey.
As a result, 65% said they anticipated having to work post-retirement to supplement their Social Security income. High inflation spurred a decades-high benefits increase for Social Security recipients in 2023.
Benefits are increasing by 8.7% in 2023 based on COLA, which factors in inflation, according to the Social Security Administration (SSA). This means that starting in January, the average Social Security recipient will get an additional $140 each month.
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