One of the reasons to save for retirement is to make your golden years less stressful and more enjoyable when it comes time to retire. And it’s nice to see some progress. When you check your retirement account balance, you feel one step closer to a leisurely, peaceful few decades ahead.
Well, sometimes.
Not always, and especially not since the beginning of the year…
Those of us saving for retirement here in America took a big hit heading into 2022. According to a report from Northwestern Mutual, on average, our savings dropped about $9,000, despite the post-pandemic impulse to save more money!
One well-documented response to the pandemic has been the impulse to save. The 2022 Planning & Progress Study backs that up – a solid majority (60%) say they’ve been able to build up their savings over the last two years, and 69% say they plan to maintain their new saving rate as we advance. Year-over-year numbers show that while savings levels remain high, they’ve dropped 15% from last year.
Several factors could contribute to the drop in savings from last year, ranging from spiking inflation to people spending more as they resume some sense of normalcy in their lives.The report showed that, even two years later, some American households are still recovering from the pandemics and lockdowns.
Some 43% believe they have made up at least some of the lost ground:
- 10% say they made up all of it and more, and they are now ahead of where they expected to be financially
- 12% say they made it up entirely and are fully back on track financially
- 21% say they made up some of the ground lost in 2020 but are not fully back on track financially yet
To adopt a pessimistic perspective, here we are, two whole years after the 2020 pandemic panic, and only 22% of Americans are “fully back on track financially” or better off than before.
That means the vast majority, 78%, are still fighting through the economic hangover of the pandemic panic. That’s astonishing!
That same Northwestern Mutual study uncovered some pretty notable backsliding in the financial planning discipline compared to the prior year.
Here are the behavioral changes reported, comparing 2021 to 2022:
- Reduce living costs/spending: 22% decline
- Pay down debt in 2021: 35% decline
- Increase investing: 42% decline
- Increase use of tech to manage finances: 31% decline
- Regularly revisit financial plans: 41% decline
These trends indicate that “making up lost ground” from the financial carnage over the last two years is not a high priority compared to the previous year.
Why this is terrible news.
This more-or-less reflects the expectation that now everything is “back to normal,” all those good habits like reducing spending and paying down debt are no longer as important.
This kind of short-sighted thinking reminds me of one of my good buddies who is very proud of his Mercedes-Benz S-Class convertible, dark emerald green, all-leather interior, and a very, very nice car. He drives it to work every day with the top down. Not only does he leave it at the front of the parking lot every day, but he can see it from his office window (and if there weren’t a spot free, he’d make his own). Now, the weather in South East Texas is highly unpredictable, so often enough, I’d notice him running to the elevator to get downstairs to roll the top up, and this happened several times before one day. At the same time, watching him with much joy, I asked him why he didn’t just roll his top up every morning, and to my surprise, he looked at me like I was stupid. “Come on, and it doesn’t rain every day.”
On the one hand, he was right. Putting the top up every day on the 1-in-10 chance of a cloudburst ruining his fancy upholstery might’ve seemed like a waste of time. On the other hand, well, it just takes one unexpected event to wreck the interior of his car permanently totally.
Which is better?
- To develop a disciplined approach to your finances and stick to it, regardless of the weather looks like.
- Change your approach when a storm front rolls in.
I’m not here to judge. These are both valid approaches to solving the problem (so long as Jacob always keeps an eye on the sky and nothing surprises him). The “stick-to-it” solution appeals to me personally because I don’t like making important decisions under pressure. I like making plans and following them. But that doesn’t mean plans shouldn’t ever change! Especially when we find ourselves in fundamentally different situations.
However, the pandemic didn’t only disrupt our financial lives, our nation’s historically-generous use of the money printer set the stage for a much longer-term problem – a 40-year-high rate of inflation makes “transitory” damage permanent.
Inflation is the “tax no one voted for (everyone pays).” That also means it affects everyone to varying degrees. That includes the people who might believe they are making up lost ground financially, especially after the last two years.
It’s easy to get confused! For example, when CNBC tells us that wages and salaries grew by 5% this year compared to a year earlier, that sounds great! A five percent raise means more money in the bank.
This is true. What most people don’t realize is that 5% growth doesn’t factor in the rising costs we saw over that same period. The latest Bureau of Labor Statistics report tells us:
From April 2021 to April 2022, actual average hourly earnings decreased 2.3 percent. [source]
“Real” average earnings include both pay hikes and inflationary price rises.
Although there’s more money in the our national banks when compared to last year, today’s 2022 dollar buys less than it did last year.
Your paycheck may be up 5%, yet your spending power is less than before. The worst part is that this loss of buying power is likely permanent.
Here’s how I explained this before:
Consider our imaginary friend Raymond.. He nets $100 per month. After a year of 5% inflation, Raymond’s monthly money buys 5% less. Next year, the inflation spike was transitory, so the inflation rate went to 0%.
Here’s the thing: Raymond’s” monthly income STILL buys 5% less.
It’s as if Chairman Powell reached into Raymond’s pocket and stole $5 every month. Forever.
Once again, and this is important, you can’t get back spending power lost to inflation. (Unless you have a time machine.)
I once wrote that saving $1 million for retirement is meaningless. You can’t measure tomorrow’s expenses in today’s dollars because today’s dollars are being steadily eaten away by inflation.
That’s why it’s crucial for everyone planning to retire one day to decide how to preserve as much buying power as possible going forward…
No matter how close you are to retirement, you can do this
We are living through a crazy time, indeed. Being responsible for your financial future has never been more complex, complicated, or crucial for your success.
Fortunately, there’s some good news. One way to endure even the craziest times in human history has remained consistent. It’s called resilience.
Here’s one definition I like:
Resilience is the process and outcome of successfully adapting to complex or challenging life experiences, primarily through mental, emotional, and behavioral flexibility and adjustment to external and internal demands.
source: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3573269/
I think resilience means changing your plans as circumstances dictate. Once you realize that inflation threatens your financial future, you can take steps today to preserve your buying power in your golden years. It is rather poetic even to think that our “ Golden Years “ will be better served if we’ve diversified heavily into Gold. Even in the afterlife, John, the author most theologians believe wrote Revelations in the Holy Bible, describes Heaven as having streets of gold. It’s safe to say that Gold is here to stay and not getting any easier to accumulate.
Inflation-resistant investments can help you maintain your buying power. In historical terms, diversifying your savings with physical gold and silver can help even more.
If you need help putting your plan together, you can start by contacting us at 855-423-4653 or shopping online at https://GoldPro.com.
