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How inflation is affecting retirement savings

Jun 23, 2022
Empower Institute

Are inflationary pressures affecting employees’ retirement plan savings?

Americans have been dealt numerous financial blows over the past two-and-a-half years. From COVID 19-induced job losses and illnesses to soaring inflation, rising interest rates and periods of jaw-dropping market declines, it’s no surprise many are feeling the economic toll.

Against this backdrop, Empower conducted a research study to gauge how participants are feeling and reacting to so many concurrent economic issues. The results are based on a qualitative survey, as well as participant data from our recordkeeping platform.

Below are some of the key takeaways from our research:

Workplace savings have not taken a backseat to other financial priorities.

  • Plan participants’ aggregate savings rate actually increased from 7.75% to 8.30%.
  • Savings rates were not impacted by age, gender, investment strategy or account balance. In fact, even most participants making less than $60,000 – those who are more likely to feel the effects of inflation – didn’t reduce their savings.
  • Overall, 25% of participants increased their savings rates, while 13% of participants reduced them.1

Of those who stopped contributing to their retirement savings plans, younger, lower income employees were more likely to stop contributing – but few did overall.

  • Gen Z saw a 9% increase in those who are eligible but don’t contribute, and millennials saw a 4.5% increase.2
  • Coinciding with the expiration of provisions in the Coronavirus Aid, Relief and Economic Security (CARES) Act, the number of plan participants taking out hardship withdrawals and loans spiked between the first quarter of 2021 and the first quarter of 2022.
  • The majority of both hardship withdrawals and loans were taken by participants earning less than $60,000 or those who had plan balances of less than $20,000.

For a more in-depth look at the research, data findings, and what plan sponsors can do to help, download the research brief.

Inflationary Pressures affecting retirement plans - research paper download

 

 

 

1 Participant savings rates in March 2021 were compared to March 2022 savings rates to determine contribution changes.

2 Percent of participants who weren’t contributing in March 2021 were compared to those not contributing in March 2022.

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