Being a middle-class worker in America is tough, especially when you’re planning for retirement. With inflation eating away at every dollar, nearly half of middle-income earners are finding themselves in the doldrums, reducing or even stopping their retirement contributions altogether.
A recent Primerica survey found that 46 percent of these workers are struggling to keep their retirement savings on track due to the relentless rise in the cost of living.
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Just look at the numbers: the consumer price index has risen by 3.4% annually since April 2024. And it’s not just things – food and shelter are getting more expensive by the day. No wonder 67 percent of middle-income families say their paychecks aren’t enough to cover the basics, and 36 percent have more credit card debt than emergency savings.
The implications of reducing pension contributions are alarming. If someone skips a $3,000 annual contribution – over 30 years, they could lose up to $25,000, assuming a 6% return. For those with 401(k) plans, the hit could be even bigger. Vanguard’s 2023 report showed that 95 percent of these plans included employer contributions. So if someone stops contributing, they lose their savings and what their employer might have brought in, potentially doubling the loss to about $50,000.
See also: Number of “401(k)” millionaires up 43% over last year – Here are three ways to join the club.
Inflation isn’t just a short-term headache—it’s a long-term threat, especially for those looking to retire. Even a “mild” inflation rate of 3% can reduce a retiree’s purchasing power. A million dollars today could only buy what $744,000 does in a decade if inflation continues to rise at this rate. That’s why saving and investing in ways that can outpace inflation is essential.
There could be a silver lining though. If inflation starts to cool, people could find some extra cash to put back into their retirement accounts. Plus, with the Federal Reserve potentially cutting interest rates, borrowing could become cheaper, giving households some much-needed breathing room. However, hope is lacking – only 21% of those surveyed believe their financial situation will improve in the coming year.
Trends: Can You Guess How Many Americans Retire Successfully With $1,000,000 in Savings? The percentage may shock you.
What is the game plan for middle-class workers facing this uphill battle? For starters, talking to a financial advisor could help develop a savings strategy tailored to individual needs. Looking at side gigs could also provide an extra financial cushion for immediate expenses and retirement savings. And of course, making savings a priority, maximizing retirement contributions, and diversifying investments are key moves to keep the retirement dream alive.
The US retirement landscape has undergone some major changes. Traditional pension plans are gone, and Social Security is not a safe bet in the long run. This has left many relying on 401(k) plans, but they are not universally used, even though they are available to most private industry workers.
All in all, the combination of high inflation, stagnant income growth, and changing retirement structures is making it harder than ever for middle-class workers to plan for their golden years. It’s a challenge, but with some smart strategies and a little hope, it can be met head on.
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This article, Survey Finds 46% of Middle-Class Workers Stop or Reduce Retirement Contributions Due to Relentless Cost of Living Rise originally appeared on Benzinga.com
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