We know by now that inflation is a burden for Americans. From trips to the grocery store to filling up at the pump, we’re paying more for everything.
But what about the ability to save for retirement?
A new study, jointly conducted by the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business and the Teachers Insurance and Annuity Association of America (TIAA) Institute, highlights the severe impact inflation is having on American retirement accounts.
Inflation’s Impact on American Retirement Accounts
According to the study, 25% of American workers had to pull back on saving for retirement because of record-high inflation in 2022.
The data also found that nearly half of that quarter (12%) stopped saving entirely.
Researchers said those polled claim they were forced to reduce their savings because they were “struggling with debt and found it difficult to make ends meet.”
“This steep of a drop—on top of a crisis where 40% of Americans already don’t have enough saved for retirement—means many families will have to work even harder to achieve a secure retirement,” said Surya Kolluri, head of the TIAA Institute. “There are no simple solutions to this challenge, but we need to take a holistic approach because health and wealth are two sides of the same coin. It’s just as important to know about someone’s medical condition as it is to know about the health of their retirement savings accounts, and employers need to engage workers on both fronts.”
“Inflation makes everything so expensive that people have to navigate that new environment and have to cut back on several ends,” added Andrea Hasler, an assistant research professor in financial literacy at GFLEC.
Why Pauses in Saving for Retirement May Do More Harm Than Good
Most financial experts will advise that working Americans start saving for retirement in their twenties.
According to SmartAsset, investors should avoid pausing their 401(k) contributions, especially during bear markets, recessions, or market downturns, because the loss in compounding earnings usually outweighs any potential savings they’d get by keeping cash out of their retirement savings.
TIAA senior economist Paul Yakoboski warns that any interruption in a person’s savings plan could have serious financial impacts down the road.
He said that even temporarily stopping regular contributions to retirement savings accounts can really hurt younger workers, who can expect the money they put away today to grow the most over time.
“It has long-term implications,” Yakoboski told CBS MoneyWatch. “You’re sacrificing your retirement savings down the road, 20, 30 years from now.”
He said that it’s important to note that skimping on saving reflects larger financial struggles for many Americans after years of stagnant wages, rising income concentration, frequent financial crises, and the highest inflation seen in 40 years.
Baby Boomers and Inflation
According to a new Credit Karma survey, about 27% of Americans 59 and older have no retirement savings.
Another 5% said they couldn’t afford to contribute to their retirement account at all.
Of those in this age group who are working and saving, 17% said they decreased their contributions to their retirement accounts because of high inflation.
Using Gold as a Hedge Against Inflation
Interest in the yellow metal increased so much recently that searches for “how to buy gold” hit a Google search record in April.
But the question is: why are more investors interested in gold?
Historically, precious metals, like gold, have been seen as safe-haven assets for several reasons:
- Diversification: Gold is known to hold its value during economic downturns. Including metals in your retirement portfolio could help diversify your investments and reduce overall risks.
- Inflation hedge: During a recession, central banks and governments may implement expansionary monetary policies such as quantitative easing and fiscal stimulus to boost the economy. These policies can potentially lead to inflation or a devaluation of the dollar. Gold is often seen as a hedge against inflation, as its value tends to rise when inflation is high or when there are concerns about the erosion of the purchasing power of fiat currencies.
- Preservation of Wealth: Gold has been able to store its value for thousands of years. It also maintains its purchasing power over time. Unlike paper currency, which can be subject to devaluation, gold has a tangible and intrinsic value. By investing in gold, you can protect your retirement savings from the erosive effects of inflation and potentially preserve your wealth for the long term.
- Portfolio Performance: Gold has historically demonstrated a low correlation with other asset classes. This means that when other investments in your portfolio might be experiencing negative performance, gold may provide a counterbalance and help mitigate losses. Including gold in your retirement portfolio could help improve overall portfolio performance and potentially enhance your returns.
- Long-Term Growth Potential: Gold has shown the potential for long-term growth. While its price can fluctuate in the short term, gold has historically increased in value over the long term. As demand for gold continues to rise, particularly from emerging markets, and with limited new supply being mined, it may offer the potential for capital appreciation over time.
- Accessibility: Investing in gold has become increasingly accessible to individual investors. There are various ways to invest in gold, including physical gold (such as gold bars or coins), gold exchange-traded funds (ETFs), and gold mining stocks. Investors can choose an investment option that aligns with their risk tolerance, investment goals, and overall retirement portfolio strategy.
- Tangible asset: Gold is a tangible asset that is not tied to any specific country or currency. It does not rely on the performance of a particular company or government. This can make gold an attractive investment option during a recession because it is not subject to the same risks as other investments that may be impacted by economic or geopolitical events.
How to Invest in Gold
There are several ways to invest in physical precious metals.
We are a company that is committed to helping hard-working Americans protect their retirement savings by converting their conventional IRA into a Self-Directed IRA that can legally hold precious metals.
If you’d like to speak with one of our Gold and Silver Specialists about your investing options, you can fill out the form on the right to claim your free, no-obligation consultation.