Inflation is still the top financial challenge for many Americans

By Ayo Mseka

Although inflation is down significantly from its four-decade high in June of 2022, it is still the leading financial challenge for many Americans today. This is one of the findings from a survey by Equitable, which was designed to help uncover the latest financial trends that are top of mind for Americans. The survey also revealed that three-quarters of respondents feel that their money does not go as far as it did a year ago. And more than twice as many reported that inflation (39%) remained the greatest impediment to achieving their financial goal.

“We live in an uncertain world, and this undoubtedly impacts how confident we are about our financial futures,” said Nick Lane, president of Equitable. “Take for instance predictions that the Federal Reserve will lower interest rates at some point later this year. Our survey found that only one in three Americans believe that lower interest rates would significantly or moderately improve their confidence in achieving their financial goals.”

This uncertainty impacts all aspects of Americans’ financial lives, including how people balance necessities with discretionary expenses, the survey pointed out. For example, for many Americans, the tax-filing season can provide a one-time infusion of extra household income. But for those Americans who are expecting to receive a tax refund this year, the survey found that eight in 10 respondents plan to allocate their tax refund towards necessities, like helping to cover living expenses (50%) or paying down debt (29%). Only 19% of respondents indicated they would use their tax refund to pay for discretionary expenses like travel or entertainment.
Consumers need help with spending and saving.

Help on long-term goals needed

The survey also revealed that individuals could use help throughout the year with balancing their immediate spending needs with longer-term savings goals, including financial security in retirement. Seven in 10 respondents use their checking and savings accounts to put aside funds for the future, including for retirement, instead of using more tax-efficient financial solutions with the potential for guaranteed income, such as employer-sponsored retirement plans or annuities.

In addition, respondents, on average, are putting aside just $175 per month on saving for retirement. And more than a quarter of those surveyed (26%) indicated they have not started saving any money for retirement. In contrast, respondents, on average, spend a total of $400 per month on the following discretionary categories: $75 on in-home streaming and entertainment; $75 on out-of-home entertainment; $75 on out-of-home dining and food takeout/delivery services; and $175 on travel.

“Financial planning can be a deeply emotional and personal subject. It isn’t always linear or rational,” said Lane. “To have realistic long-term aspirations, you must consider both a person’s ‘wants’ and ‘needs.’ Our holistic planning model goes well beyond a client’s financial wellness. We consider an individual’s sense of purpose, their physical and emotional health, in addition to their financial goals.”

The Equitable survey was conducted online by an independent, global consumer and B2B panel provider. Respondents include 1,000 U.S. adults (ages 18 and older). The survey was fielded from February 23, 2024, through March 6, 2024.

Pre-retirees expect to face more challenges in retirement than their parents and grandparents
Another survey, this one released by Nationwide, highlights an environment that is filled with many financial challenges for pre-retirees, such as inflation. According to Nationwide's ninth annual Advisor Authority survey, the majority of pre-retiree investors (69%), defined as non-retired investors aged 55-65, agree that the norm of retiring at 65 doesn't apply to them. Two-thirds (67%) of pre-retirees expect to face more challenges in retirement than their parents and grandparents did.

This stress is shifting the perception of life as a retiree, especially for those who are the closest to retirement age, the survey said. Four in 10 (41%) pre-retirees said they would continue working in retirement to supplement their income out of necessity, and more than a quarter (27%) plan to live frugally to fund their retirement goals. What's more, pre-retirees said that their plans to retire have changed over the last 12 months, with 22% expecting to retire later than planned.

"Many of us watched our parents and grandparents enjoy a smooth transition to a secure retirement powered by traditional pension benefits," said Eric Henderson, president of Nationwide Annuity. "Today's investors are having a tougher time picturing that for themselves as they grapple with inflation and concerns about running out of money in retirement."

What pre-retirees are doing to adjust

So, what are pre-retirees doing to adjust to this new reality? According to the Nationwide survey, more than other cohorts, pre-retiree investors are adjusting their spending and savings habits. Four in 10 (42%) agree that managing day-to-day expenses is getting more difficult due to the cost of living. Nearly three in 10 (27%) are saving less for retirement because of inflation, and more than half (57%) believe inflation poses the most immediate challenge to their retirement portfolio over the next 12 months. Additionally, more than four in 10 (41%) pre-retiree investors are avoiding unnecessary expenses such as vacations, jewelry, and shopping sprees to save more for retirement, compared to 34% of non-retired investors.

How financial professionals are guiding their clients’ near-retirement strategy
With difficult financial choices ahead for those nearing retirement, advisors are offering actionable insights and recommendations to guide clients toward post-career financial security. Pre-retiree investors are talking with their advisors about various topics: accumulating sufficient savings to enter or stay in retirement (49%), tax-planning strategies (38%) and converting accumulated savings into retirement income (33%).

Advisors also reported counseling their pre-retiree clients on when to claim Social Security benefits (28%), taxes and tax planning (23%), and planning for health-care costs in retirement (21%). Additionally, advisors are recommending that their pre-retiree clients delay taking Social Security benefits (32%) to ensure maximum payment benefits in retirement, an increase from five months ago (28%).

In addition, advisors have increased their efforts to incorporate strategies to protect pre-retiree clients against market risk, the survey said. More than six in ten (61%) advisors are adopting strategies or annuities to do so, compared to 55% just five months ago. Annuities (79%) and diversification/non-correlated assets (77%) rank as the most popular solutions used to help clients protect their assets against market risks.

Nationwide's ninth annual Advisor Authority study, powered by the Nationwide Retirement Institute, explores critical issues confronting advisors, financial professionals and individual investors—and the innovative techniques that they need to succeed in today's complex market. The research was conducted online by The Harris Poll on behalf of Nationwide from January 8-23, 2024, among 518 advisors and financial professionals, and 2,346 investors ages 18+ with investable assets (IA) of $10K+. Investors included a subset of 391 "pre-retirees" age 55-65 who are not retired, and subsets of 346 single women and 726 married women.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].