Inflation causes shift in retirement priorities

So long, convertible sports car and Mediterranean cruise in retirement. Hello, status quo.

As a result of recent market volatility and inflationary pressures, American workers now see maintaining their current standard of living as their top financial priority in retirement, replacing more lavish plans, according to a new study from Principal Financial Group.

In a survey of nearly 1,000 consumers and 215 plan sponsors in the United States, more than 7 out of 10 (71%) consumers said their key goal in retirement is “maintaining my standard of living,” while fewer than half (44%) cited splurging periodically in retirement as a priority.

“In the current environment of high inflation and potentially lower investment returns, we are seeing something of a retirement reset among U.S. workers,” Sri Reddy, senior vice president of retirement and income solutions at Principal, said in a statement.

Even though American workers have tempered their retirement goals, a large percentage of those surveyed remain anxious about even reaching the finish line. About 40% said they feel that they're behind in their retirement savings and that the spike in inflation has them worried about their ability to make up the shortfall. According to the study, inflation is one of the top stressors for U.S. workers, along with the economy, health care, aging parents and the future of the nation.

The bear market has affected outlooks on other financial issues as well. Workers making career moves amid the current “Great Resignation” now rank “benefits that will help my financial well-being” third among their top considerations (58%), behind “competitive salary” (79%) and a “good culture where I feel valued” (64%).

"Expectations have certainly been tempered across the board," said Brett Sifling, investment adviser representative at Gerber Kawasaki Wealth & Investment Management. "The good news is that during this new environment with higher rates, people who are retiring can now utilize more conservative portfolios to generate yield, which wasn’t possible in the recent past."

Perhaps the good news for tense American workers is that their employers appear focused on providing them with financial planning options to relieve their anxiety. According to the survey, a majority of plan sponsors (88%) agree their organization is responsible for ensuring employees have access to benefits that help maintain their financial well-being. Meanwhile, 87% agree that providing the right financial tools, resources and education can help employees better prepare for retirement, even if it won’t be as extravagant as they once dreamed.

That said, there may be a disconnect when it comes to how workers actually utilize such programs offered by employers. The Principal survey showed only 35% of workers participate in financial wellness programs, and nearly half (46%) don’t even know whether such a program is available.