Cost of living crisis forces workers to overlook 401k, debt repayments

Rising inflation and fears of a possible recession have forced employees to reconsider investing in their retirement funds and savings.

Nearly two-thirds of employees are said to have cut their short- and long-term savings contributions since the start of the year, with a third having reduced their 401(k) contributions, blaming financial instability in the United States

A study by Morgan Stanley at Work showed that more than a quarter of workers have reduced their debt repayment to cope with the rising cost of living, while almost one in six employees have reduced their funds college savings.

The report raises concerns for future retirement funds which have been impacted as a result of the COVID pandemic and US market instability, with around a third of Americans believed to have less than $10,000 in their retirement kitty. .

About 25% of workers have already reduced their long-term savings and reduced their emergency savings, with just under one in five reducing contributions to health savings accounts.

The report also showed that money-related stress has also affected workers’ productivity and personal lives, with nearly three in four workers saying stress has a negative effect on their daily lives.

According to human resources managers who have heard employees express concerns about their finances, almost half are worried about being able to pay off their debts in the coming year, with two in five expressing discomfort with the financial crisis.

Anthony Bunnell, retirement manager at Morgan Stanley at Work, suggested companies could do more to help their staff deal with financial issues.

He said: “The data is clear: employees are struggling to balance long-term savings with immediate needs.

“An oft-overlooked resource that can be a game-changer, especially in today’s environment, is the financial advisor available through workplace pension plans – professionals who can help plan members achieve positive financial results and, by ultimately providing some peace of mind.”

According to data from GOBankingRates, about a quarter of Americans have only saved between $10,000 and $50,000 in their retirement fund, and just under one in 10 have saved more than $350,000.

The data also highlighted the gender gap when it comes to saving for retirement, as 40% of women have less than $10,000 in their 401(k) compared to 31% of men.

According to Brian McDonald, director of Morgan Stanley at Work, shrinking savings are concerning because “more wealth is created in the workplace than anywhere else.

“Employees always think of the 401(k) plan as the central thing they think of when thinking about benefits at work,” McDonald said. “That certainly hasn’t changed.

“The fact that employees have reduced their 401(k) contributions year over year is concerning because they won’t take full advantage of their workplace retirement plans and the compound interest that can help them build a heritage over time.

“Granted, setting aside money for long-term goals can be difficult as costs like rent and tuition rise. (k)plan.”

How much you’ll need to save for retirement depends on your current financial situation, what you expect to live after you stop working, and when you plan to retire.

According to Fidelity, saving at least 15% of your pre-tax income each year should be enough to allow the average American to retire comfortably.

Remember that the sooner you start putting money aside for retirement, the lower your annual savings rate can be and the more money you are likely to have accumulated by retirement age. .

If you haven’t started saving for your retirement yet, don’t worry. Fidelity suggests that if you start saving at age 30, you should aim to save around 18% per year. If you start saving at age 35, you should be saving 23% a year to retire with enough money in the bank to keep going.