Dealing with challenges created by high inflation, many Americans have been forced to make adjustments to their retirement savings strategies. Some have opted to pause or lower their contributions, while others have even resorted to dipping into their accounts to access the funds.
Yahoo Finance Senior Columnist Kerry Hannon breaks down the details.
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Editor's note: This article was written by Angel Smith
Video Transcript
RACHELLE AKUFFO: For many Americans, the daily cost of living have made saving for retirement a struggle. They've paused contributions to retirement accounts, pared them back, or dipped into these funds. So what does this mean for your financial future? Well, Yahoo Finance senior columnist Kerry Hannon is here to weigh in. Always good to see you, Kerry. So walk us through what's happening here.
KERRY HANNON: Hi, Rachelle. Yeah. I mean, the thing is we hear all this great news about how the robust stock market is really-- you know, people's retirement accounts have blown up and we have all these new millionaires in their 401(k) accounts. And that's a fabulous story, we love hearing that. But there's a flip side. And there are these individuals who simply have been-- the rising costs have been relentless.
Yes, you know, we know inflation is slowing down, but it certainly isn't going away and it's already jumped up significantly for groceries, gasoline, rent, all the things, the necessities. And so these studies from Allianz and from Vanguard, from Betterment, they're all showing that people have, in fact, really cut back their contributions.
In fact, I think Allianz was like 7 in 10 have cut back contributions, as well as dipped into their retirement accounts. And you know, Rachelle why this is a problem is because we see numbers. Now, the census is saying that in the next three decades, the number of people over 100 is going to quadruple. So come, on we've got to be saving. And the things that are stopping people are really troubling in the sense of the long-term growth of their retirement savings.
And so I worry about younger people having trouble, contract workers trying to get in. You've got to figure, there's something like 56 million Americans that don't have an employer-provided retirement account. And what that means is you don't have someone automatically signing you up for a retirement plan or automatically taking that pay out of your paycheck and putting it into your retirement account every pay period. And that makes it a real struggle for people when they have to make that voluntary decision.
In fact, Vanguard found that people that automatically have retirement savings taken from their account by their employer save 50% more.
RACHELLE AKUFFO: And Kerry, it's tough, when you have these emergencies that come up or even to pay for groceries, and you're like, look, I can afford to take-- to pinch some here for my 401(k) but they're not really thinking about the long-term, a compounded impact that that has. What are some alternatives that would still allow them perhaps to not have to take that route but still allow them to stay a little bit more afloat?
KERRY HANNON: Yeah. I'm so glad you said that. It is the compounding thing, isn't it? I mean, it's so hard to see the big picture because you go, like, this is my money. I need it for these immediate costs. It's a really tough trade-off. And so I think there are a couple of things happening here.
I think number one, Rachelle, it's people need-- there are some new laws that came into play this year, that now employers can look at your student loan payments. They can consider them as contributions to your retirement account, which goes into the equation for an employer matching your retirement savings. That's going to be a big help for people.
The second thing is their pairing-- they have the green light now to pair emergency savings account with your retirement plan. Not every employer is offering this, but they may down the road. This is starting that process. Those are good things. The most important thing I encourage everyone to do, and I know you do as well, is financial literacy.
So simple things you can do for free. Run those retirement calculators that you can find on AARP, on Vanguard, on Fidelity, Schwab. They're free. Just get an idea of what your picture might look like no matter what age you are. Run those numbers and it might help you get an incentive and understand how big this decision is.
You know, you might tap into a free online education and financial matters, and University of Michigan has a good one. You can find some great profile books, as I call them. Mark Miller has a book "Retirement Reboot." All of these things can help. And ask your employer, more employers are offering financial wellness programs where they can help you learn about finances.
I met a young woman who's 25 and she just opened her first Roth IRA. She had not been able to save for retirement. She didn't even know what they were or that they existed before that because no one told her. So I think we need to get-- drum the beat, get the message out. People need to learn as early as they can about finances and the things that will have impact on your future.
RACHELLE AKUFFO: Indeed, we certainly can't scare ourselves out of looking at reality and trying to find some solutions here. Appreciate you as always, Kerry. Great stuff. Thank you so much.
KERRY HANNON: Thanks, Rachelle.
