From Peter Reagan at Birch Gold Group
We’ve spent some time discussing the “magic number,” the amount of savings required for a comfortable retirement. Inflation moves the goalpost – and if your retirement planning doesn’t take rising costs into account, you may be in for a shock.
According to the annual Charles Schwab survey of Americans with a 401(k), we are taking inflation into account. But we’re getting discouraged.
Here are the highlights:
- The new magic number: $1.8 million (up $100,000 from 2022)
- The biggest obstacle: Inflation (62% vs. 45% in 2022)
- Only 37% believe they’re very likely to achieve that goal (down 10%)
That last number is the most shocking. Just over 1 in 3 Americans now believe they’ll be able to retire comfortably (and remember, these folks all have 401(k) accounts!)
Brian Bender, head of Schwab Workplace Financial Services, blames inflation:
When inflation persists for an extended period of time, workers are inevitably going to feel a deeper impact on their wallets. While many workers are trying to cut back on spending, some costs are unavoidable, and certain areas of their finances have taken a hit.
What Bender said certainly makes sense. Especially once you take a deeper look into the survey itself and examine the main obstacles standing in the way of saving for a comfortable retirement:
Inflation and economic volatility are the primary concerns. In fact, the only category that’s improved is saving for children’s education – which is confusing, because, on average, college tuition rises 12% per year. Let’s hope these people aren’t just giving up on their children’s futures…
So what are people doing about it? According to the poll, it’s a mixed bag:
The good:
- 37% are cutting back on spending
- 31% are buying less-expensive products
The bad:
- 32% are saving less (20% putting less in their emergency fund)
- 26% are still spending more in general
- 23% are paying down debt more slowly
I hope I don’t need to tell you that saving less and spending more is highly unlikely to help them prepare for retirement…
But the bills have to get paid! At a certain point, you just can’t cut costs any more. When prices are steadily rising, and the credit cards are nearing their limit, what do you do?
Americans are now ransacking their retirement savings to pay the bills
Retirement savings are intended for retirement (it’s right there in the name!) Today, an astonishing number of Americans are sacrificing future financial stability:
In the second quarter, the tally of folks taking hardship withdrawals from their 401(k) was up 12% compared to the first three months of the year and leapt 36% year over year…
Borrowing from retirement savings was also up. The percentage of 401(k) participants who got a loan from their workplace plan stash in the second quarter was 2.5%, up from 1.9% in the first three months of the year. [emphasis added]
One of the reasons we recommend an emergency fund is so you don’t need to tap your long-term savings during tough financial times. (There are a few reasons you can make a hardship withdrawal without incurring a 10% penalty – otherwise, not only are you compromising your future, you’re also paying taxes for the privilege…)
Steve Parrish, adjunct professor, and co-director of the Center for Retirement Income at The American College of Financial Services added: “I fear the public will go in and out of their retirement plans. The current increase in withdrawals and loans may be an indicator of movements to come.”
This is a strong indicator of the difficult situation American households are in. Regardless of whether the National Bureau of Economic Research says the nation is officially in a recession, if this many people need to draw on retirement savings just to pay the bills, the economy is in trouble.
That’s bad news for everyone – whether or not you’re struggling to pay the bills. We all know that most financial assets do best during times of robust economic growth.
The closer you are to retirement (or if you already hit your own personal magic number), the less attention you should be paying to growth.
And the more attention you should be paying to preserving your savings.
Protection from both inflation and economic volatility
Diversifying your savings with assets that insulate your wealth from economic downturns, as well as protecting against inflation, can help add some much-needed stability to financial future.
Physical precious metals like gold and silver have intrinsic value just like other commodities (based on their utility as well as supply and demand). No one can simply print more of them, so they tend to retain their value over time. Diversifying with physical precious metals, along with other inflation-resistant investments, can help preserve your buying power.
You can learn more about building a recession-resistant financial plan here.
If you think physical precious metals might be right for you, get all the information you need about both gold and silver to make an informed decision right here – totally free.