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Retirement Dreams Fade As Inflation Lingers, Market Falters and Prices Rise

As more than 20 million Americans approach retirement age, estimates of the funds needed for a comfortable life after work have risen to just over $1 million, according to annuity.org.

But that number is way out of reach for most.

The average net worth of the 47.8 million Americans age 65 and older is only $170,516, according to the US Census. This is supplemented by an average annual income of $38,515.

With inflation at 8.3% and a declining global market, nearly three quarters of Americans agree that the country is facing a pension crisis.

“2022 could be one of the worst years to retire in recent history,” read the 2022 Natixis Global Retirement Index report. “With markets falling, interest rates still relatively low and inflation taking a big bite out of retirees’ wallets, those who leave the workforce are at risk of receiving retirement benefits from an already depleted pool of assets.”

Jerome Powell, chairman of the board of directors of the US Federal Reserve, speaks at a press conference following a meeting of the Federal Open Market Committee (FOMC) at the Federal Reserve headquarters on September 21, 2022 in Washington, DC. Powell announced that the Federal Reserve is raising interest rates by three-quarters of a percentage point.
Photo by Drew Angerer/Getty Images

Factors such as rising food and energy prices, rising interest rates, debilitating healthcare costs and cyclical debt are causing more Americans than ever to worry about their financial future.

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According to a recent survey by GOBankingRates, 20% of Americans between the ages of 55 and 64 said they are delaying their retirement plans because of inflation.

Paul Dilda, head of consumer strategy at BMO Harris Bank, said this is an indication of a bigger problem.

“We haven’t seen this level of inflation in a very long time, and it’s very discouraging,” he told CNBC, adding that many people at or near retirement age may not have considered these price increases in their financial plans.

“It’s hard to save,” he added, “and these times make it even harder.”

The increased difficulty of saving, along with a smaller social safety net, has dramatically changed popular views on retirement, said Scott Jensen, a certified retirement income professional and lead financial planning advisor at Country Financial..

Decades ago, an individual’s typical work/retirement plan might have been to work for one company for 40 years and retire with a full company pension. But today, only 17% of private companies offer a traditional retirement plan.

And people are much more active about retirement, prioritizing activities such as travel, volunteer work, and extra hobbies. But without a pension to provide a consistent stream of income, the responsibility rests with the individual to secure a secure financial future.

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“Today, very few people have a pension that provides a stable, predictable income,” Jensen told News week“So they need to be much more involved in the production, safety and security of their own retirement income.”

While this “active” approach has brought US households more flexibility, the long-term certainty of a US retirement is disappointing compared to that of its international counterparts.

In the Netherlands — as in Denmark, Canada, Germany and the rest of the major industrialized countries — public and private sector employees are covered by a kind of pension. Yet most employees in America do not have access to an employer-sponsored retirement plan.

This is partly why the US ranks 18th in a list of 44 countries that offer the most “safe” pensions for their citizens in the Global Retirement Index.

In addition to a weakening Social Security system, America’s scores were bogged down by low employment opportunities, high income inequality and a relatively average quality of life for retirees. Pressures from medical debt and taxes were also major drivers of financial uncertainty.

Each of these factors has been exacerbated by the volatile economic environment of the past six months, in which stock prices plummeted while mortgage rates and consumer prices rose.

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Given this volatility, Jensen advises those approaching the end of their working year to retire cautiously and cautiously.

“We know there will be positive return years and negative return years,” he said. “We just don’t know exactly when they will be. So if you’re unlucky and experience a lot of negative returns on early retirement, you might be digging a hole you can’t dig out.”

While inflation remained stubbornly high at 8.3%, the Federal Reserve announced another rate hike by 0.75 percentage point on Wednesday, in line with increases in June and July. That benchmark rate now stands at 3.25%, more than four times higher than the 0.75% on May 1, just four months ago, according to forbes.com.

Jensen said this pressure is increasing the need for serious retirement planning. In addition to building a solid emergency savings bank, Jensen recommends that those approaching retirement take a detailed assessment of their financial situation.

“Whether working with a financial professional or alone,” he said, “find out where you are and where you need to be.”

“You may have seen an increase in the cost of living and a decrease in your account balances,” Jensen said. “If the combination of these hasn’t changed your chance of a successful retirement, fine, then you can move on and move forward in light of those things.”

“But if that assessment shows that things aren’t so rosy,” he warned, “then you should reassess and try to make some changes.”

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