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As dollars get harder to stretch at the grocery store and gas pump, some Americans are focusing on one key long-term goal: saving for retirement.
More than half of workers — 55% — say they feel they’re falling behind on their retirement savings, according to a new Bankrate.com survey.
According to a September survey of 2,312 seniors, only 25% of workers increased their pension savings this year compared to last year.
About 34% of workers contribute the same amount, while 16% save less. In addition, 24% did not contribute to retirement savings last year and are not saving this year.
Inflation has made saving difficult
Inflation is the top reason employees aren’t contributing more, according to 54% of respondents to a Bankrate survey. This was followed by stagnant or declining income, 24%; new spending, 24%; debt repayment, 23%; keeping extra cash in the till, 22%; and market volatility, 18%. The remaining 7% of respondents indicated that they do not want or need to contribute more, and 5% indicated other reasons.
The results come as the IRS announced new contribution limits for retirement accounts in 2023. Employees will be able to contribute up to $22,500 in 401(k) plans this year, up from $20,500. The limit for individual retirement accounts will increase from $6,000 to $6,500 this year.
Those 50 and older can earn more — an extra $7,500 in 401(k) plans in 2023, $6,500 this year and $1,000 more in individual retirement accounts.
Approaching these limits may be difficult for some workers.
“The labor market may be very strong, but we’ve seen wages not keeping up with inflation,” said Greg McBride, chief financial analyst at Bankrate.com.
“Half of the workers who got a pay rise said it wasn’t enough to cover higher household costs,” he said.
Separately, a recent report from LendingClub found that 63% of Americans, including almost half of those making more than $100,000, live paycheck to paycheck.
Anuj Nayar, financial health specialist at LendingClub, told CNBC that “working a job is no longer enough for everyday Americans.”
‘Biggest financial regret’ is not starting to save early
Working baby boomers between the ages of 58 and 76 say they are behind on retirement savings, with 71%. This was followed by 65% of Gen Xers aged 42-57 who said they needed to catch up.
Younger generations said they were more confident about continuing to save for retirement, with 46% of millennials saying they were lagging behind and only 30% of Gen Z workers.
According to McBride, the results match the key finding of past surveys that Americans’ biggest financial regret is that they didn’t start saving for retirement early enough.
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“The closer you get to retirement, the more likely you are to say it’s your biggest financial regret,” McBride says.
One of the main reasons older workers have more regrets is that they have less time left in the workforce, so there’s less time to pay back any savings they feel they’ve missed.
Moreover, even if they plan to work longer, circumstances beyond their control can shorten their careers.
How to stay on track with retirement savings
The good news is that workers of all ages can take steps to strengthen their retirement savings, according to McBride.
According to McBride, that includes paying themselves first, taking advantage of tax-advantaged retirement savings options and getting full employer compliance.
“Successful saving is about habit,” McBride said.
“The best way to start this habit and keep it going is to automate your contributions,” he says, through payroll deduction to an employer-sponsored plan or an automatic monthly rollover into something like an IRA.
So you won’t want to use the money elsewhere.
Plus, if you’re making pre-tax contributions, $1 saved won’t reduce your net pay by $1.
While younger workers with the longest tenure have the biggest advantage, it still pays to increase deferral rates for those in mid- and late-career.
According to McBride, those who continue to invest in this bear market when stock prices are low will reap the most rewards.
“When you look back in 10, 15 years, you’ll be really glad you stuck with it in 2022,” he said.