Inflation, stock swings and more erode Americans’ confidence in future financial security

When it comes to retirement readiness, many Americans are feeling disillusioned. A spring Gallup poll found that only 43 percent of nonretired adults expect to live out their golden years comfortably. That’s the lowest figure since 2012 and a 10-point drop in just two years.

“Pre-retirees always worry about the monster under the bed — running out of money in retirement,” says Pam Krueger, founder and CEO of Wealthramp, an online service that matches investors with financial advisers. “All that’s happening at a time when inflation is higher, the standard of living costs more and everything seems pessimistic.”

Fretting over outliving your money is nothing new, but Americans’ confidence in having enough money to retire on is dropping at a pace not seen since the waning days of the Great Recession. Here are five of the forces driving that pessimistic turn and financial pros’ perspectives on how worried you should be about them.

1. Fear of inflation

The inflation rate may be coming down from the 40-year peak it scaled in the first half of 2022, but most things are still more expensive than they were a year ago. That hasn’t been lost on workers wondering if their savings will be enough to keep up with rising costs.

“Even if inflation went down to less than 2 percent, we still have to live with what happened over the last couple of years,” says Eric Henderson, president of Nationwide Annuity. “It’s hard to catch up.”

It’s one of the reasons people are pushing back their retirement dates. Among nonretired investors ages 55 to 65, 25 percent plan to retire later than they expected, according to Nationwide’s 2023 Advisor Authority survey. An additional 15 percent say they aren’t sure they will be able to retire at all.

Should it keep you up at night? Inflation is real, and its impact will continue to be felt even as the Consumer Price Index declines, especially for those who are near retirement and won’t have time to catch back up. For younger workers, the current inflationary period is less of a threat over the long haul.

“At any point in time, you can find chaos,” says Bryan Kuderna, in Shrewsbury, New Jersey. “Panicking has never benefited anybody. You have to deal with the circumstances at hand and make the most rational decisions you can.”

For some, that might mean waiting a year or two longer to retire, or moving money into a guaranteed income stream such as an annuity, so you have more cash in hand if inflation strikes again. You can’t guarantee your money will outrace inflation, but don’t let that stop you from taking steps to mitigate its impact.

2. Fear that Social Security is wobbly

Social Security is the main source of income for three in five retirees, according to the Gallup survey, but only one in three nonretirees believe the benefit program will be there for them when they need it.

Talk of Social Security going “bankrupt” has been swirling for years, feeding that growing lack of confidence. “Those 50 and under are buying into the doom and gloom,” Kuderna says.

Should it keep you up at night? Social Security will keep paying benefits as long as workers keep paying into the program via payroll taxes. But it is paying more in benefits each year than it collects in revenue, making up the difference by tapping a cash surplus in its trust funds.

That surplus will be exhausted by 2034, according to the most recent projections by Social Security’s trustees. The Congressional Budget Office estimates the trust funds will be depleted even sooner, in 2033.

That doesn’t mean Social Security won’t be there for you — but you could get significantly less from it. Unless Congress takes action to shore up the program’s finances, benefits would be reduced by more than 20 percent when the trust funds run dry.

3. Fear of a volatile market

Stocks go up and they go down. Lately they have been doing the latter, which spooks investors, particularly ones who rely on investment accounts to sustain them in retirement. Forty-eight percent of nonretirees polled by Gallup say they expect a 401(k) or IRA to be a major supplier of their retirement income, more than any other source.

“Since nonretirees are so pessimistic on Social Security solvency and have put much of their earnings in 401(k)s, they are much more sensitive to any shocks in the stock market and their retirement account,” Kuderna says.

Should it keep you up at night? When markets are down, it’s easy to panic and sell, but history has shown staying the course to be the better option. Let’s say you had $10,000 invested in stocks in December 2007 and resisted the urge to sell amid the market turmoil of 2008. Even though the S&P 500 lost half its value during the financial crisis, that $10,000 investment would have been worth $35,461 at the end of 2022, according to Putnam Investments.

“Over the long run, equity markets have done very, very well,” Henderson says. “People should not be overly concerned about short-term fluctuations in the market.”

To assuage any lingering market angst, try to maximize retirement income that isn’t subject to bulls and bears, such as annuities or Social Security benefits. You can claim Social Security as early as age 62, but your monthly benefit will be 43 percent bigger if you wait until full retirement age (67 for someone born in 1960 or later) and 77 percent larger if you put it off until age 70.

4. Fear that the kids won’t leave

Blame it on the pandemic, inflation, student debt or something else, but more young adults are moving back home. Nearly half of U.S. adults ages 18 to 29 lived with their parents in 2021, up from less than a third in 1980, according to data from Morgan Stanley. That puts a lot of pressure on a lot of household budgets.

Even if the kids aren’t moving home, many require financial assistance from their families. How many? Forty-five percent, discounting children with disabilities, according to a 2023 survey. How much? More than $1,400 a month on average, the study found. Parents within a decade of retirement are spending even more on their kids — about $2,100 a month, more than triple what they’re saving in retirement accounts.

“A major reason I’m seeing my nonretiree clients stress near retirement is how much they continue to financially help their adult children,” Kuderna says.

Should it keep you up at night? Only if it comes at the expense of your own retirement, Kuderna says. He subscribes to a “parents first” philosophy of retirement planning: Don’t forgo saving for retirement to cover an adult child’s expenses — lest you find yourself needing to ask them for financial help in your elder years.

5. Fear of the unknown

From regional bank failures to large-scale layoffs, there’s a lot going on financially that we don’t anticipate or can’t control. On top of all the things listed above, that uncertainty can create a sense of hopelessness about retirement readiness.

“How the hell do I have enough blanket to cover the bed if wages are stagnant, the income gap and inflation are growing and, on top of that, higher interest rates make it harder to borrow?” Krueger says. “Those things contribute to chronic pessimism.”

Should it keep you up at night? If left unchecked, fear can have tangible consequences. It can paralyze you in the face of changing conditions or cause you to overreact. How to overcome it? Plan for the unknown, Krueger advises, as best you can.

What form those plans take will depend in large part on where you are in life. When you’re younger, try not to get rattled by short-term shocks and stick to your savings plan. As you near retirement, consider reorienting your portfolio toward protecting assets — for example, by shifting some resources from riskier growth stocks to more stable assets such as blue chips, bonds and cash.

“People forget to change money prototypes as they age,” Krueger says. “Your priorities shift over time. A way to control the fear is to be very aware and reposition as you move closer to retirement.”