One-quarter of employed Americans have reduced the amount of money they put aside for retirement in response to the ongoing economic turmoil and historic levels of inflation. Over the past year, the number of adults who say it is “difficult” to make ends meet has also grown, according to the 2023 Personal Finance (P-Fin) Index compiled by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC).
Financial literacy also plays a role in retirement readiness, according to the report.
“Employed adults with very low financial literacy were more than four times as likely to stop saving for retirement in 2022 because of inflation’s impact on their finances, compared to those with a very high level of financial literacy,” the report states.
Interruption or cessation of retirement savings activity, especially for younger workers, can have serious consequences for retirement stability in later life, the report notes.
“Employees not only get behind with their regular contributions but also miss out on investment earnings, which can have a substantial impact on the total amount accumulated at retirement age, especially for young workers,” the report states. “In addition, research has shown that inertia is an important factor preventing retirement savings contributions from being increased. Thus, the lower contributions to retirement savings could persist far beyond the times driven by high inflation, amplifying the impact of the recent decrease in retirement savings on long-term financial security.”
Hispanic adults have disproportionately reduced the amount of money they set aside for retirement savings, with 40% of Hispanic adults surveyed reporting this move. That figure is approximately double the reported rate among Asian, Black and white workers. And, within the Hispanic survey respondent group, 24% of respondents report stopping retirement savings activity completely.
Americans also turned to savings in greater numbers to cover higher living costs, the report states.
“[T]he share of adults without nonretirement savings sufficient to cover one month of living expenses increased from 32% to 39% during 2022, indicating that many may have dipped into savings to deal with the increased cost of living,” the report notes. “In addition, the share who are debt constrained increased from 20% to 26%.”
Thasunda Brown Duckett, president and CEO of TIAA, recently explained that bolstering financial literacy will be critical in addressing the minority wealth gap, particularly as it relates to retirement.