Americans say they’re putting aside their retirement dreams for the moment – at least until the price of consumer goods and inflation settle down.
The BMO Real Financial Progress Index, a quarterly survey conducted by BMO and Ipsos that measures Americans' opinions about financial confidence, found that nearly 60% of those surveyed think that inflation has adversely impacted their personal finances. Another 25% feel that rising prices have had a “major” effect on their finances.
The survey also showed that 36% of Americans have reduced their rainy day savings, and 21% have cut back on putting money away for retirement. Younger Americans – aged 18 to 34 – are taking the biggest hit, with over 60% of respondents in that demographic saying they have had to reduce contributions to their savings in order to make ends meet.
What people are doing to offset the growing costs of living
Consumers are taking a wide range of steps to keep their financial lives from crashing down around them. Some of them include:
Changing how they shop for groceries. Forty-two percent of survey respondents are opting for cheaper items and avoiding brand names. Instead, they're buying more store brands and limiting purchases to necessary items.
Dining out less. Forty-six percent of the respondents said they either dine out less frequently or are consciously spending less when they do go out.
Driving less. Thirty-one percent of respondents are driving only when it’s necessary to offset the soaring cost of gas.
Spending less on vacations. Twenty-three percent of consumers said they’ll be cutting back on some of the frills when they go on vacation or canceling their vacation plans altogether.
Cutting back on subscriptions. Twenty-two percent of respondents said they are ending subscriptions to their gym, streaming platforms, and other services to save money.
What financial plan experts suggest as best practices
ConsumerAffairs reached out to retirement planning experts to see what they suggest Americans do to gain some financial balance between their spending habits and rising inflation. Paul Tyler, the Chief Marketing Officer at Nassau Financial Group, said the first thing near-retirees should do is continue to work if they can.
“By continuing to work, near-retirees can continue to bring in a paycheck to cover surprise expenses and let their 401(k) balances grow a little longer,” he told ConsumerAffairs.
He added that cutting back on unnecessary expenses is also a good strategy right now.
“Analyze your credit card bills and see where you can conserve cash. Call your cable provider and request a discount. Tell your cell phone company your thinking of switching carriers and they may offer a discount. Plan errands to maximize your gas dollars.”
Another insight comes from Mark Williams, CEO at Brokers International. He says consumers should try to reduce expenses by cutting out certain "luxury" purchases, but he also notes that credit card spending is also something to keep an eye on.
"If you are noticing money is getting tighter, try not to start using your credit card more often and go into debt," Williams told ConsumerAffairs.
His suggestions for small changes you can make to your retirement strategy that might help?
- Reduce the amount you contribute to your retirement accounts by reducing the withdrawal percentage you are contributing to your 401K, IRA, 403B, etc…
- Reduce the amount of auto-withdrawal (if you have one) that is going to a savings account.
- Reduce the amount you may be saving for secondary education.
- Consider using the equity in your home for certain expenses by using a HELOC or other type of equity loan.
- Consider increasing your deductible(s) on certain insurance policies (homeowners, car, boat, etc…) to reduce the monthly premiums. However, consumers should note that increasing deductibles means paying more out of pocket if there is a claim. If you take this approach, Williams says you should increase your safety net emergency savings account to offset the increase.
- Consider a review of your life insurance policies and determine if you are overinsured. If you are, you could lower the face amount of the policies to reduce cost. This should be done after speaking to a financial advisor.
"Always seek professional advice when making changes to any retirement strategy and that becomes increasingly more important the closer you are to retirement," Williams emphasized.