Retirement planning affects workers of all ages. It is a decades-long process that requires a significant amount of time, discipline, and money.
However, current economic conditions are making it challenging for many Americans to plan ahead easily. Inflation, market volatility, and the risk of outliving savings are top of mind for people who are anxious about retirement plans.
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Elevated inflation has diminished consumer purchasing power over the past few years and increased the average person's expenses. This means people may need more money to put aside for retirement as they are more concerned with how their retirement nest egg will cover rising costs.
For those still in their prime working years, balancing the competing financial pressures with rent, student loan payments, everyday expenses, and retirement savings can be overwhelming.
We spoke with Mindy Yu, director of investing at Betterment, to discuss how taking advantage of workplace benefits targeting retirement and student loans may be the key to planning for the future despite high consumer prices.
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Take advantage of employer benefits
Most Americans have noticed that the price of consumer goods and services — mainly groceries, housing, and gas — skyrocketed over the past few years and have yet to fall despite low inflation. Necessities comprise an increasingly large share of household income, making budgeting and financial planning difficult.
Yu notes that the best approach may be to keep it simple by budgeting and maximizing employer benefits, focusing on retirement and student loans.
"While inflation has come down, consumer prices remain high. I think people confuse that with seeing the CPI figure, and they automatically think the price of eggs will be lower,” she said. “But we're seeing that opposite effect because prices are still high.”
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“Budgeting is an important step in ensuring that younger consumers balancing rent and student loans have a rainy day fund, and those expenses are covered.”
A solid retirement plan can be the key to attracting talent and retaining high performers. Fidelity found that employee retirement savings rates hit 14.2% in Q1 2024 primarily because of employer match.
This is the closest the retirement savings rate has ever been to the industry rule of saving 15%, allowing consumers to reach major savings milestones even when their budget may not allow it.
“Employer match and student loan matching are important components of how someone can maximize their retirement savings,” Yu continued. “If you can only contribute a certain amount due to the limit of your budget, employer match is a great way to maximize that retirement savings and contribute to the growth for the long term.”
“It's the same with student loan matching,” she said. Most workers have to pay some degree of student loans, so if they're automatically contributing to their loan payments, some employers offer a match on that as well. That's another great way to maximize their retirement savings."
The Secure 2.0 Act of 2022 allows employers to offer retirement matches based on an employee’s student loan payments rather than just their 401(k) contributions. This is highly beneficial for workers who need to prioritize paying off student loans and can utilize their employer’s 401(k) matching program.
Don’t rely on Social Security — maximize your 401(k) and IRAs now
The longevity of Social Security has long been concerning, but the risk has never been more present than it is now. While there have been conflicting reports about President-elect Trump's plans for the program, he has publicly vowed not to cut the benefits. However, some experts have warned his policy proposals, such as one to include a tax cut on social security benefits, could contribute to the program's insolvency before 2035.
"Social Security benefits have always been at risk throughout different administrations,” she explained. “But the fact [is] there is now a real risk of depletion and that reduction in benefits is worrisome for people of all ages.”
Related: The average American faces one major 401(k) retirement dilemma
“Reliability on Social Security benefits should not be at the forefront for many retirement savers,” she continued. “We all know there is the potential for someone having shortfall risk if savers solely rely on Social Security benefits.”
Those approaching retirement and current retirees may want to adopt a portfolio prioritizing bonds but still have some stock exposure to generate returns if needed. Protecting assets while having the ability to enjoy market yields can help consumers prepare for the uncertainty of retirement.
“It's important to be diversified and align to what your retirement plan is essentially for someone nearing retirement, how their portfolios should be composed of more bonds than stocks,” Yu explained. “Having bonds in your portfolio can be a source of income generation and capital preservation for when you are in retirement.”
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