Depending on your definition, the U.S. has either been in a recession
since late last year, or will plunge into a deep recession
this year.
I don’t want to argue that point today. Instead, I want to address the “retirement recession” we’ve been experiencing these last couple of years.
First, let’s take a quick look at the direct impacts on those trying to set aside their hard-earned money for their golden years.
As you’d expect, those whose savings had the highest allocation to stocks are down significantly since markets peaked back in December of 2021 (S&P 500 down 14.8% to date). Thanks to a rising interest rate environment, bonds have taken quite a beating as well (broad bond market down 13.5% to date).
Those are just performance numbers, though… I’m more interested in how financial markets are impacting individuals.
A comfortable retirement is more out of reach today
A recent survey shed light on the perilous state of American retirement savings:
- Today, on average, we 10% less in savings than a year ago.
- The percentage of retirees with nothing saved increased from 30% to 37%.
- 83% of retirees say inflation has impacted their retirement savings.
- “Economic conditions have left many retirees without the recommended amount in savings to live a comfortable retirement.”
- 71% of respondents said their finances caused them anxiety.
- Finally, 88% say rising costs of living have noticeably increased their financial anxiety this year.
The consequences of not having saved enough aren’t pretty:
- 18% of retirees have skipped meals.
- 24% have skipped medical treatment or appointments to stretch savings.
Maybe you think “retirement recession” is a melodramatic phrase?
I guarantee you those who are skipping meals and canceling medical appointments they can’t afford would disagree.
The importance of how much we save and how we invest those savings simply cannot be overstated.
I think Ben Stein and Phil DeMuth put it best in The Little Book of Bulletproof Investing:
Saving too much money leads to a sense of nostalgic regret from a rocking chair in front of a crackling fire with a dog at your feet and a snifter of brandy at your side. Not saving enough money leads to pushing a shopping cart holding all your possessions down a wintry street and sleeping in doorways.
There’s a clear lesson to be learned here.
Most people don’t seem to be catching on…
We’re saving less when we should be saving more
Bank of America published key metrics from a study of 401(k) participants. It’s not a happy story:
- Even though experts generally recommend contributing 15% of your income to retirement savings, was only 6.4% -- less than half the recommended amount
- More than 1/4 contributed less than 3% to their 401k
- During 4Q2022, a whopping 15.9% of all 401(k) loans ended up in default
I’ve spent a lot of time talking about the retirement crisis.
And there has been some progress…
Our elected leaders are finally paying at least some attention to the challenge. You already know I’m not a fan of their plan to save Social Security by convincing us to wait longer to claim our benefits.
That’s not the only plan in the works, though…
SECURE 2.0 legislation fails to deliver security
Legislation called SECURE 2.0 includes provisions intended apply a band-aid to our retirement saving struggles.
Alas, there’s not much there there:
- Catch-up contributions will increase to $10,000 for older participants invested in workplace retirement plans.
- The required minimum distribution (RMD) age will increase to 73, giving participants more time to have their savings grow before they need to make withdrawals.
- Employers will be required to auto-enroll eligible employees into 401(k)s and other workplace plans.
- More part-time employees will have access to workplace retirement plans, opening the door for more people to enjoy the tax benefits of these accounts.
Consider how helpful these are when we’re dealing with red-hot inflation, rising interest rates and volatile financial markets...
If people are skipping meals, how does increasing catch up contributions help?
How does “forcing employers to enroll” help people who are already enrolled?
If people are already taking out 401k loans and hardship withdrawals, does the RMD provision help at all?
I’ve already pointed out there are no silver bullets. No quick fixes. That won’t prevent the government from writing and voting on new legislation.
We cannot count on politicians to solve our problems for us – we have to take matters into our own hands.
Are you experiencing financial anxiety?
If you’re concerned about your financial future, I invite you to once again consider Stein and DeMuth’s words:
Saving too much money leads to a sense of nostalgic regret from a rocking chair in front of a crackling fire with a dog at your feet and a snifter of brandy at your side. Not saving enough money leads to pushing a shopping cart holding all your possessions down a wintry street and sleeping in doorways.
Are you saving enough for your future?
Could you be saving more?
Are you taking on too much risk?
Stein and DeMuth offer some advice:
…we know a great deal about what not to do when it comes to investing, but only a few positive things about what to do. However, these few things are extremely powerful.
– Simplify
– Diversify
– Invest passively
– Minimize expenses and taxes
– Buy and hold
If you're looking for an opportunity to simplify, diversify and invest passively over the long term, minimizing expenses and taxes, physical precious metals are worth a look. They’re one of the very few assets I know of that fit those five criteria listed above.
Concerned about market volatility and excessive risk? Take a minute and educate yourself on the benefits of diversifying into safe haven assets like gold and silver. Diversification may help you lower your risk without significantly lowering your returns. (If nothing else, you'll probably sleep easier at night.)
In addition, there are any number of inflation-resistant investments that can help you protect your savings from the corrosive effects of inflation.
I sincerely hope you are not experiencing financial anxiety – that you aren’t skipping meals or canceling doctor’s appointments to save money. And I hope you make the right decisions today so you’ll never find yourself making such dire decisions in the future.
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Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver. Based in the Los Angeles area, the company has been in business since 2003. It has an A+ Rating.
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