Many Americans, especially seniors nearing retirement, are finding that inflation has quietly chipped away at their retirement savings. Even though retirement accounts have technically grown in recent years, the rising cost of living has offset these gains. According to economist E.J. Antoni, recent economic policies have created significant hurdles for people planning for retirement, and the losses are more than just numbers—they’re years of hard work and savings.
Retirement Savings: Growth on Paper, Loss in Reality
Between 2021 and 2024, the average 401(k) balance rose by about $11,000, which might look like progress on the surface. But when inflation is factored in, that increase actually represents a real loss of $12,000, or about 9.2%. Inflation has been relentless, making every dollar in these accounts worth less than it was before. As a result, even though retirement balances technically grew by $30 trillion across the country, their purchasing power now sits closer to $27 trillion. That’s $2.5 trillion lost to inflation—money that was supposed to secure comfortable retirements.
Why Some Investments Were Hit Harder Than Others
One key issue is that many retirement accounts are invested in bonds and other fixed-income assets, which generally offer stable returns but have taken a severe hit recently. Bonds, typically seen as safe investments, have seen their worst performance since 1928. This comes as a surprise to many retirees who believed bonds would provide steady income. However, due to rising inflation and interest rate changes, these investments have become far less reliable in recent years.
“A lot of people think of the stock market as the main measure of their retirement’s success, but that’s just one piece of the puzzle,” Antoni explains. “Fixed-income assets, like bonds, play a big role in retirement accounts, and they’ve been underperforming badly.” So, even with gains in the stock market, the poor performance of bonds has left many retirees feeling they haven’t made as much progress as they expected.
Why Has Inflation Been So High?
According to Antoni, a big reason inflation has soared is the increase in federal spending over recent years. Since 2021, the national debt has risen dramatically, reaching an estimated $36.2 trillion by the end of 2024. Additionally, the government’s cash reserves have dropped by about $1 trillion since the current administration took office.
“All this spending creates a ripple effect,” Antoni says. “When the government increases spending and debt, it often leads to higher inflation, which drives up prices for everyone, especially seniors living on fixed incomes.” This inflation surge has had a direct impact on retirees, as it’s reduced the purchasing power of their savings and driven up the cost of essential items like groceries, housing, and healthcare.
The Impact of Debt on Future Retirement Security
As the national debt grows, so does the interest the government has to pay on that debt. This could potentially affect funding for programs like Social Security and Medicare. As the cost of servicing debt takes up more of the federal budget, it could lead to cutbacks in other areas.
The more the government borrows, the more it spends on interest payments, which then adds inflationary pressure on the economy. This cycle makes it harder for the government to support other programs, leading to even more strain on the financial system. This creates additional challenges for those looking to retire, as uncertainty grows around how well these programs will be able to support them in the future.
Retirees Feeling the Effects of Inflation
In a recent survey by Nationwide, many older Americans reported that they’re reconsidering retirement due to the ongoing economic uncertainty. More than 25% of non-retired investors shared that they might need to re-enter the workforce if they retire soon due to insufficient savings. About 19% of respondents expressed doubt that they will ever save enough to retire comfortably. Another 19% said they plan to retire later than they originally intended because of inflation and its impact on their financial security.
The cost of living has gone up for everything from gas and food to healthcare, making it harder for retirees to stretch their savings. Inflation has forced many people to think twice about retirement, questioning if they’ll be able to afford the life they planned for.
What Could Help Ease the Burden?
Experts believe that reducing government spending would help ease inflationary pressure, benefiting both savers and retirees. Limiting federal spending would lessen the need for the government to borrow excessively, which would then help keep inflation in check. Over time, these adjustments could put the deficit and national debt on a more sustainable path, helping to stabilize prices and reducing the burden of inflation on everyone.
Lowering inflation would give retirees and savers more control over their finances, allowing them to plan for the future with more certainty. In the long run, a balanced federal budget could make the cost of living more manageable for people on fixed incomes.
What Can Retirees Do Now?
While broad economic changes take time and government action, there are steps individuals can take to protect their retirement savings from the impact of inflation:
- Diversify Investments: Consider balancing your portfolio with a mix of assets, including stocks, real estate, and other investments that may offer a hedge against inflation.
- Review Fixed-Income Investments: If your portfolio relies heavily on bonds or fixed-income assets, it might be worth consulting a financial advisor to explore options that better withstand inflation.
- Budget Adjustments: Take a close look at your budget to prioritize essentials and adjust spending on non-essential items, especially during periods of high inflation.
- Delay Social Security Benefits: Waiting to claim Social Security can increase your monthly benefit amount, which can be a helpful buffer against rising living costs.
- Consider Part-Time Work: If retirement funds are falling short, part-time work can supplement income, even if just temporarily, allowing more time for retirement savings to grow.
Moving Forward
The rising cost of living and reduced value of retirement savings has left many Americans wondering about their future financial security. For those close to retirement, inflation and low returns on fixed-income assets have changed the landscape, and many are now reevaluating their plans. The hope is that reduced spending and careful economic management could help alleviate some of this inflationary pressure, but for now, retirees and those approaching retirement may need to make adjustments to weather this period of uncertainty.
The financial landscape for retirees has changed significantly, and planning for the future has become more complicated. While some economic factors remain out of our control, staying informed and taking proactive steps can help individuals adapt to these changes. For now, everyone—especially those close to retirement—will want to keep a close eye on their finances and consider strategies to protect their savings from further inflationary impacts.
