Inflation Seen As Biggest Risk To Americans’ Retirement Plans In 2022

Although Americans say they worried the most about the COVID-19 pandemic in 2021, rising inflation is now seen as the biggest risk to their retirement plans.

This is according to the annual New Year’s Resolutions Study conducted by Allianz Life Insurance Company of North America (Allianz Life).

Nearly half (48%) of respondents identified the pandemic as the most worrisome threat of 2021, with the rising cost of living following at 38%. However, looking ahead, a full one-quarter of Americans now view rising inflation as the single greatest risk to their retirement plans, more than doubling from 2020 (8%).

This focus on inflation is significantly higher than other risks to retirement, many of which saw a significant decline in concern from 2020:

“It’s no surprise that inflation was identified as the most worrisome threat as it has been on people’s minds even before the recent announcement of a 6.8% increase in the Consumer Price Index (CPI),” according to Kelly LaVigne, vice president of Consumer Insights for Allianz Life. “Beyond the headlines, Americans are starting to see the effects of inflation at places like the grocery store and the gas pump; so, it’s becoming more of a real issue affecting how they spend their money on a daily basis. That’s why it’s so important for people to write down their financial goals and be specific heading into the New Year.”

Inflation concerns are definitely more acute for older Americans – especially those who are already retired and living on a fixed income, added LaVigne. If they don’t have a method to address rising costs already within their financial plan, their only option is to try and cut back on spending, which may sound easy, but can actually be quite difficult. For these older Americans, it’s probably already too late to do anything to outsmart inflation.

However, future retirees and those recently retired should use this opportunity to understand inflation and plan for how they can address it – including reviewing different investments, products or strategies that will help to mitigate the effects of inflation in the future when they stop working, according to LaVigne.

“That could mean everything from connecting with a financial professional who can provide guidance on how to develop a retirement portfolio that can help protect against inflation – to adding protection products that provide guaranteed income in retirement and may also have the ability to provide increasing income in the future.” he said.

Less Desire For Professional Help

The survey also found a low desire for professional assistance with financial planning among the respondents. In fact, only 22% of respondents said they are more likely to seek the advice of a financial professional in 2022, down from 27% last year.

“The reasons for avoiding a financial professional could range from overall procrastination, to not recognizing the value they provide, to not having an idea how to work with one,” LaVigne explained. “I’d like to see this number go up as financial professionals are dedicated to keeping people honest with their financial goals and helping develop smart, achievable steps they can take to make an impact.”

For people who don’t have a lot of financial discipline, even seemingly simple things like budgeting can be extremely challenging. And it’s important to keep in mind that a financial plan should address more than just weekly spending – it should also include plans for the future, including retirement, LaVigne said.

That can seem like a daunting task, but if tackled one step at a time, it becomes less intimidating. That’s what these professionals are passionate about – helping people achieve their financial goals, she added.

Millennials Feeling Financial Angst

In addition, the survey noted that one-quarter of Millennials said their financial situation got worse this year, compared to 2020. This is higher than for both Gen Xers (17%) and boomers (15%).

In addition, compared to other generations, Millennials are more concerned about stagnant wages (22% vs. 15% Gen X and 6% boomers) and job security (21% vs. 12% Gen X and 5% boomers). Moreover, Millennials are particularly concerned that the rising cost of living will impact their ability to pay for necessities (65%), and save enough for retirement (71%) and short-term goals (70%).

These financial concerns may be having a negative effect on Millennials’ health. More than four in ten (46%) said they experienced more overall stress this year compared to last year, the highest of all generations (37% Gen X and 27% boomers), as well as more stress related specifically to their finances (41% Millennials vs. 28% Gen Xers and 16% boomers), according to the survey.

That said, about four in ten (42%) Millennials are optimistic that their financial situation will improve in 2022, much higher than Gen X (22%) or boomer (18%) respondents.

Allianz Life Insurance Company of North America conducted an online survey, the 2021 Allianz Life New Year’s Resolutions Study, November 15-17, 2021, with a nationally representative sample of 1,115 respondents.

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].