Inflation Leading to Retirement Saving Behavioral Change Across Generations

Inflation fears are (understandably) leading to behavioral change, especially with retirement saving and investing.

Following a second straight year of above-average inflation, and after last year’s volatile markets, workers’ perceptions of what retirement will look like has begun to shift, further complicating the retirement outlook, MFS Investment Management (MFS) said Oct. 17.

The firm released its 2023 Global Retirement Survey, which found:

• 63% of American workers believe their retirement will not mean an end to their employment but rather a transition to reduced hours or a different job.
• 60% say the recent increase in inflation has caused them to think differently about retirement.
• In response to the inflationary environment, 61% of Americans have adopted more conservative investment strategies, a higher percentage than workers in Canada, Australia or the United Kingdom.
• 75% say they now need to save more for retirement than they originally thought.
• 66% are not confident they will be able to retire at the age they want.
• 32% think they will not be able to retire at all.

“The uncertainties and disruptions over the past few years have clearly affected workplace savers, who are now less sure about when retirement will come, what it will look like and how they should prepare for it,” Jeri Savage, retirement lead strategist, at MFS, said in a statement. “Plan sponsors and advisors have an opportunity to educate workers on the benefits of staying invested, as well as how to get back on track and stay on track.”

That includes communicating with those near retirement as well as much younger plan participants.

One surprising finding of the survey, MFS said, is that a greater percentage of younger workers (those under 45) feel they need to save more (76% vs. 65%) and work longer (58% vs. 53%) because of recent market events, even though younger workers have more time than those over 45 to course correct for negative market impacts.

Workers Have Competing Priorities

With participants feeling negatively about recent market events, it translates into a decline in overall retirement confidence. Just 34% of respondents are confident they will be able to retire at the age they want, a number that has declined since last year’s survey.

The survey also found that respondents across all generations have competing priorities and feel those financial obligations can get in the way of saving adequately for retirement. This is most pronounced for millennials (89%), who say they are also saving for emergencies (41%), education (28%) or student loan payments (25%) or are living paycheck to paycheck (26%).

As retirement investors are grappling with these challenges, most are looking to their companies for help. For instance, 53% of respondents say they have found or expect to find a financial advisor through their employer. And if their workplace retirement plan offered access to an advisor, 70% say they would use that resource.