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

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

But that number is far beyond the reach of most.

The average net worth of the 47.8 million Americans currently aged 65 and older is just $170,516, according to the U.S. Census. This is supplemented with an average annual income of $38,515.

With inflation at 8.3% and global markets in decline, nearly three-quarters of Americans agree that the country is facing a retirement crisis.

"2022 could be one of the worst years to retire in recent memory," read the 2022 Natixis Global Retirement Index report. "With markets down, rates still relatively low, and inflation taking a big bite out of retirees' wallets, those who step out of the working world run the risk of taking retirement distributions from an already depleted pool of assets."

Jerome Powell Fed Rate Hike 09.21.2022
U.S. Federal Reserve Board Chairman Jerome Powell speaks during a news conference following a meeting of the Federal Open Market Committee (FOMC) at the headquarters of the Federal Reserve 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

Due to factors like rising food and energy prices, increased interest rates, debilitating healthcare costs and cyclical debt, more Americans than ever are worried about their financial futures.

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

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

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

"It's difficult to save," he added, "and these times are making it even more difficult."

The increased difficulty of saving, together with a shrinking social safety net, have dramatically changed the popular vision of retirement, said Scott Jensen, a retirement income certified professional and lead financial planning consultant at Country Financial.

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

And people are taking a much more active approach to their retirements, prioritizing activities like travel, volunteer work, and taking up extra hobbies. But without a pension to provide a consistent income stream, the onus falls on the individual to arrange a secure financial future.

"These days, very few individuals have a pension that provides stable, predictable income," Jensen told Newsweek, "so they're having to be a lot more involved in the production, safety, and security of their own retirement income."

While this "active" approach has brought increased flexibility to American households, the long-term security of an American retirement is underwhelming compared to its international peers.

In the Netherlands — as well as in Denmark, Canada, Germany, and the rest of the major industrial nations — public- and private-sector workers are covered by some kind of pension. Yet, most employees in America lack access to an employer-sponsored retirement plan.

This is partly why the U.S. was ranked 18th in a list of 44 countries that provide the most "secure" retirements 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. Pressure from medical debts and taxes were also notable causes of financial insecurity.

Each of these factors has only been exacerbated by the volatile economic environment of the last six months, which have seen stock values plummet while mortgage rates and consumer prices rise.

Considering this volatility, Jensen advises those nearing the end of their working years to approach retirement with care and caution.

"We know there are going to be positive return years and negative return years," he said. "We just don't know exactly when they're going to be. So if you happen to be unlucky and experience a bunch of negative returns in early retirement, you may dig a hole that you can't dig out of."

With inflation remaining stubbornly high at 8.3%, the Federal Reserve announced yet another 0.75 percentage-point increase in its benchmark interest rate on Wednesday, matching its hikes in June and July. That benchmark interest rate now sits at 3.25%, more than four times higher than its 0.75% rate on May 1, just four months ago, according to forbes.com.

Jensen said these pressures increase the need for serious retirement planning. In addition to building a solid bank of emergency savings, Jensen recommends that those approaching retirement years perform a detailed assessment of their financial situation.

"Whether it is working with a financial professional or on your own," he said, "figure out where you're at and where you need to be."

"Maybe you've seen an increase in living costs and a decrease in your account balances," Jensen said. "If the combination of those hasn't changed your likelihood of a successful retirement outcome then fine, you can go ahead and move forward in light of that stuff."

"But if that assessment reveals that things are not as rosy," he cautioned, "then you should be reassessing and trying to make some changes."