Given the current economy and uncertain political landscape in the US, it will come as no surprise that people are having to tighten their belts.
The costs of groceries, education and healthcare are constantly making headlines. The costs of retirement may be discussed less often. The result is that those of us forced to make cuts in this area can feel like we are on our own.
In fact, we are (just) in the majority. A recent study from Allianz Life indicates that just over half of respondents have either reduced retirement savings or stopped saving altogether in the past six months.
The Allianz Center for the Future of Pension found that 51% of respondents said they had stopped or reduced their retirement savings in the past six months, with younger workers much more likely to be among that number. (62% of Gen Z and Millennials compared to 46% of Gen X and 36% of Boomers.)
Even more troubling, 47% said they had to dip into their retirement savings in the past six months. So for almost half of us, our savings are not just stagnating. They are actually declining.
The reasons vary, but include concerns about rising healthcare premiums, uncertainties about inflation in general – and rising inflation grocery prices in particular – and concerns about various policies such as the burden of tariff policy on American consumers.
If you’re among the 51% of retirement savings cuts, there are a few things to consider.
Are there other areas you can cut back on?
This may seem obvious, but there are dozens, if not hundreds, of ways to cut back without having to cut back or invest in retirement savings.
However, saving for retirement often seems like the easiest option, especially for younger workers. You can reduce your contributions or even withdraw your retirement savings, and it won’t affect your current lifestyle. Plus, you’re far enough away from retirement to think you’ll make up for it later.
Remember, there’s a reason why it makes sense to start saving for retirement from a young age: the simple concept of compound interest. Saving early means that you can usually save less than if you save later. Don’t cut back on your retirement savings as a first resort. First, go through your budget and think about where else you can save.
Are you offering an employer match?
There’s a reason why many financial gurus will tell you to max out your retirement savings, no matter what level your employer allows. That match is of course free money. But then again, it’s free money that you don’t see – and won’t see again for a long time – so it seems easy to just let it go.
Go through your retirement accounts and really analyze the numbers to see what you stand to lose. This may be enough to motivate you to find other ways to save money or increase your income.
Are you worried about ‘Maybe’?
Respondents to the above survey cited several reasons for reducing or ending retirement savings. These included ‘expected premium increases’ in health insurance and general low confidence that the economy will improve in the coming year, as well as concerns about a market correction in the stock market and fears around their own job security.
While these are real fears and valid concerns, it is also important to be aware that decisions made out of fear of what might happen in the future are not always the right ones.
The best course of action for any employee considering reducing, closing or cashing out their retirement savings is probably to speak to a specialist financial advisor. Professional advice can help you get a very clear picture of the pros and cons of adjusting pension contributions, given your age, income and objectives, as well as your current circumstances and financial capabilities.
About the author
Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks, and the occasional award-winning short story. Her work has appeared in a range of publications, both online and offline, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine. Learn more about Karen
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