Study Shows People Need to Play Retirement Savings Catch-up In 2022

Many Americans face a retirement savings crisis, exacerbated by almost two years of the COVID-19 crisis. The financial blowback from the pandemic continues to plague a wide cross-section of Americans, including those closest to retirement age.

Unfortunately, most people are not saving enough right now. During the pandemic, Americans reduced their retirement contributions overall by 3%, with millennials reducing their contributions by 1%, Gen Xers by 11%, and boomers by 5%.  That means 2022 and beyond will have to be retirement savings catch-up years. 

Pandemic Effects on Retirement Savings

New research has uncovered the following key takeaways about how Americans have dealt with the financial stress of the pandemic: 

  • 35% of Americans dipped into retirement savings to make ends meet during the pandemic, reporting they spent 44% of their retirement savings on average.
  • During the pandemic, Americans have reduced their contributions to retirement funds by approximately 3% on average, though 65% plan to increase their contributions again once life returns to “normal.”
  • With an average of $296,064 saved for retirement, boomers fall 36% short of the recommended $465,000 and may not have time to make up the difference.
  • Among the 30% who have investments, the average American sold 43% of their stocks during the pandemic. As the stock market bounced back after a crash early in the pandemic, 60% of people who got rid of stocks regretted their decision.

A Split of Pandemic Personal Finance Habits

Though there’s evidence to suggest that some Americans adopted better saving and spending habits during the pandemic, others are still struggling with the impact of the pandemic’s financial strain, a reminder that not all financial setbacks are equally distributed. 

One-third (33%) of respondents in a study indicated they had saved more in the last year, but an almost equal third (31%) said they are saving less or stopped saving altogether, while 9% said they’ve dipped into their savings. 

Americans across the board dipped into their retirement savings and stock investments during the pandemic, leaving baby boomers in particular on a rocky financial footing with a limited amount of time to catch up. 

Looking Forward to 2022 and Beyond

Still, most Americans view the financial setbacks as temporary and say they’re in “recovery mode.” Moreover, more than half say they’ll update their retirement strategy when the dust from the pandemic settles, with 65%  saying they plan to boost their retirement contributions. 

About 91% of Americans have something saved for retirement, the average amount being  $250,813, although other statistics put that figure closer to just $65,000. In either case, Americans are not saving enough to reach the expert-recommended figure of $465,000 or adhering to the 80% rule, which says you’ll need about 80% of your pre-retirement income to live comfortably after you retire from your job. 

Boomers have the most catching up to do (around $296,064 saved, or 36% less than the recommended amount) but face the biggest challenge in that they have the least amount of time before hitting retirement age to make up the $127,000 difference. The youngest of the baby boomers will turn 55 in 2021. 

On the other hand, Millennials say they plan to save $133% more than their older counterparts, or $901,542, and Gen Xers plan to save about $776,000 for retirement. 

The good news is that post-pandemic across all generations, Americans say they have plans to nurse their retirement savings back to financial health. Overall, Americans intend to: 

  • Increase their retirement contributions (65%)
  • Contribute to stocks or real estate investments (34%)
  • Contribute to low-risk investments (31%)
  • Contribute to high-risk investments (21%)

Strategies for 2022 Retirement Fund Recovery

People who consider themselves in financial “recovery” mode can take several steps to invest and shore up their retirement funds to pre-pandemic levels. 

Boosting contributions to an employee 401(k) plan is a solid strategy, especially since the average 401(k) balance was up 4% in the third quarter of 2020 to $109,600 from $105,200 in 2019 although more people are saving less money during the COVID-19 crises. 

401(k) plans offer excellent ways to save, but 401(k) plans may not allow for enough savings due in part to IRS restrictions.  Contributing to an IRA is one option; be. However, it a traditional IRA or a Roth IRA, your money is allowed to grow tax-free until retirement, similar to a 401(k).

Almost 7 out of 10 retirees, or 69%, use other investments such as stocks and real estate as a source of income during their retirement. However, the simplest way to start investing in stocks for long-term growth is through mutual funds, often available through an automated investment plan.

Commit to riding out the ups and downs of the market for the long term. For example, almost one-third of Americans with investments (30%) panicked when the pandemic hit and sold off portions of their portfolios. Later, 64% of millennials and 58% of baby boomers said they regretted cashing out their stock. 

Real estate can be an excellent way to diversify your investment portfolio, as it can be a hedge against stock market volatility and typically increases in value in the long term. Investors looking to buy rental properties or houses to renovate and flip may protect their profits if they use the proceeds to invest in another property, whether in Arizona or California. Other ways to invest in properties include real estate crowdfunding or REITs. Consult a real estate agent to see if investing is right for you.

One survey revealed that four in five Americans lack the basic knowledge of retirement planning to be financially secure. As more Americans inch toward retirement in the next decade, particularly boomers, it’s more important than ever to get back to the basics of saving and investing for the future. 

This article was produced and syndicated by Wealth of Geeks.

Feature Image Credit: Mikhail Nilov/Pexels.

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Ben Mizes is the co-founder and CEO at Clever Real Estate, the nation's leading real estate education platform for home buyers, sellers, and investors.