Nearly half (47%) of Americans say achieving retirement security will be a miracle, according to recent data released by Natixis Investment Managers.
While an alarming statistic in itself, the fact that this number is up significantly from the 40% reported just two years ago highlights just how devastating rising inflation and interest rates are to Americans’ retirement confidence. It shows whether it is having a negative impact.
However, the study also provided some encouraging information. In fact, in a 2023 study, the overall retirement security score in the United States rose from 69% to 71%.
What can we draw from this study? And how does the United States compare to other countries when it comes to retirement security? Read on to learn more.
What were the notable findings from the study?
There’s no doubt that Americans are feeling bleak about their retirement security as costs rise thanks to high inflation and interest rates. But importantly, the study found that retirement security is actually increasing in America.
Research shows this is due to a variety of economic factors that are actually improving Americans’ financial lives. For example, since the pandemic, wages have risen, unemployment has been low, and tax rates remain relatively low by historical standards.
For retirees, this can be a double-edged sword, as higher interest rates can lead to higher incomes, but often also higher costs.
How does inflation affect retirement security?
Inflation affects retirement security in two main ways. First, it increases the cost of retirement. Many retirees live on a fixed income and don’t have the ability to handle increased expenses unless they cut back in other areas.
Inflation also reduces the future value of current assets. In layman’s terms, this means that the same amount of money in the future will be worth less than it is now. This has a particularly negative impact on bond values. For example, if he buys a $10,000 bond today that matures in 10 years, the $10,000 he will receive when the bond matures will be worth less than it is now. This is important for retirees because many retirees own bonds as an income-producing investment.
Which country has the highest retirement security?
The Natixis study compared the level of retirement security in the United States with that in other countries. Perhaps unsurprisingly, America did not fare much better on a comparative basis.
Despite improving its retirement security score from 69% to 71%, the United States still fell two spots to 20th in this year’s ranking of the world’s developed countries. The main reasons for this were the aforementioned high inflation rate and the rise of the government. debt. Life expectancy in the United States has also declined since the coronavirus pandemic.
Globally, the top five countries with the best retirement security are Norway, Switzerland, Iceland, Ireland, and Luxembourg, according to the study. In most cases, these countries have strong social programs in place to help care for their residents both during their working lives and in retirement, with benefits such as free education, free healthcare, and guaranteed retirement pensions. Provided.
How can you protect your nest egg from rising inflation?
One of the best defenses against rising inflation is the built-in cost-of-living adjustment provided by Social Security. The value of your Social Security check increases each year according to the inflation rate determined by the Social Security Administration.
Increased payments do not necessarily equate to increased personal expenses, but in some cases the actual increase may be greater. Either way, this is a useful built-in safeguard against rising inflation.
Additionally, if you want your money to last in an inflationary environment, you may have to make some difficult choices. For example, he might work a few more years and retire at 67 instead of 65, or he might need to adjust his lifestyle a bit.
Another option is to move to a more affordable area. If you plan to retire in California and find the costs a little high, you may consider moving to the South or Midwest, where costs are a bit more affordable.
These suggestions are consistent with the responses of survey respondents. The most common sacrifice survey respondents said they would have to make was living frugally, with 42% saying they were likely to make it. While 31% expect to move to a less expensive location or continue working after retirement, a significant proportion (28% and 26% of respondents, respectively) will rely on family and friends or sell their home. I answered that I might have to.