How People with Pandemic-Induced Financial Fatigue Can Get Back on Track

People are worn out. They are trying to make it through the stress of
the pandemic, a continually volatile market, and record inflation.
And, for many who are years from retirement, they have decades of work
ahead of them.

These younger Americans are in the middle of their working years –
those critical saving-for-retirement years. It’s not easy to keep
those retirement goals in mind when current finances feel uncertain.

The new 2022 Retirement Risk Readiness study* from Allianz Life found
that people who have yet to retire are much more concerned about their
financial futures than retirees – particularly after two years of
uncertainty with the pandemic.

The big point: People further from retirement feel financially at risk.

The majority of younger Americans (particularly those more than 10
years from retirement) are more afraid of running out of money than
death. In the study, 63% of non-retirees said they fear running out of
money more than death. Meanwhile, just 46% of retirees had the same
fear. All people are saving and investing in the same market. Yet,
these younger Americans are much more worried about their financial

Actions taken during the pandemic could be one reason they don’t feel
secure because, according to the study, non-retired Americans made
some financial decisions during the pandemic that left them in a
precarious position:

34% took cash out of investment accounts like a 401(k) or IRA.
39% reduced the amount of money they were putting into retirement accounts.
54% said they spent too much on non-necessities.

In general, people should refrain from touching retirement investment
accounts until they leave the workforce. They should also maintain
contributions to those accounts. But, these moves already happened –
an opportunity lost. So, let’s focus on what people can do to address
risks to their retirement security, starting today.

Here are some tips to get back, or stay, on track toward retirement
goals. The proposed SECURE ACT 2.0 looks like it will pass at the time
of this writing, and some of the provisions will help to save for
retirement more attractive and affordable for younger pre-retirees.

Get back to basics

Sometimes you have to return to Finance 101. Re-examine your monthly
income and expenses. Find out how much you can reasonably save – and
then do it. Make a plan to pay off debt, especially high-interest or
non-mortgage debt like credit card debt and car loans.

The hardest part about this process is that it involves work and
brutal honesty. You have to write everything down – don’t expect
you’ll remember everything. This is where commitment begins.

Then, start checking down the list of ways you can make those efforts
work even harder for you. First, consider putting those savings into a
high-yield savings account. Once you have an emergency fund of around
six months’ worth of expenses in cash, then you can start putting
money into investment accounts.

If your employer offers a retirement savings plan, consider enrolling
in it. Many companies also offer employees a match on contributions to
a retirement account as part of their benefits package. Take full
advantage of it. That means if you make $50,000 a year and your
company matches 5%, you could invest $2,500 into a 401(k) plan a year
and automatically double that with another $2,500 from your employer.
By the end of the year, you have just put 10% of your salary into
retirement savings.

The proposed SECURE ACT 2.0 contains a provision that would provide
for automatic enrollment for employees at a 3% contribution rate that
will increase every year by 1%. Before this comes about, make sure you
are comfortable with that amount. Also, if student loan debt is
preventing you from being able to make contributions, there is
currently a provision that would allow employers to match what you are
paying in student loans with a contribution to your 401(k) or other
employer plans. If the bill passes, you should ask about this.

You could also be eligible for tax credits for those contributions
made to retirement accounts. The Saver’s Credit is available to some
low-to-moderate income families. The Saver’s Credit gives a tax break
for contributions made to an IRA or employer-sponsored retirement

Automate your savings

The easiest way to save is not to have to think about it. This is one
reason why 401(k) contributions are so great. They come out of your
check each pay period without you having to make an active decision.
This eliminates the temptation to spend, spend, spend. Particularly if
you’re among the more than half of non-retirees who said they spent
too much money on non-necessities during the pandemic.

Examining your budget could help figure out how you could change your
monthly cash flow to put more money into savings and investment
accounts. Automatic transfers from checking into these accounts will
establish strong habits. You could start with something as simple as a
$10 transfer into these types of accounts each week.

Catch-up contributions

Once you reach age 50, you can make catch-up contributions to IRAs and
401(k) plans. That means you can go beyond the normal limits to
contributions allowed in those plans. This can help make up for not
saving as much as you would have liked in the past.

The typical contribution limit for 401(k) plans is $20,500 in 2022. A
catch-up contribution allows you to put another $6,500 into the plan.
The proposed SECURE Act 2.0 has a provision to increase the catch-up
contributions to as much as $10,000 starting at age 62. There may also
be a way your employer could match your Roth 401(k) contributions that
could potentially add more tax-free retirement income for you later in
life. You should consult with a tax adviser on whether this makes
sense for you.

Manage your risk

Don’t be seduced by a potentially huge upside. If you’re feeling
behind, you may want to protect the money that you are investing.

Sure, a riskier investment might have a bigger payoff over time than
the traditional, safer choice. But, that means the risk to lose is
higher too.

Consider creating a balanced portfolio of investments with varying
levels of risk. That balance should include financial products like
index funds, bonds, and annuities that historically carry less risk.
Investments that offer some risk mitigation, such as buffered (ETFs),
or fixed-indexed or registered index-linked annuities (RILAs) with
buffers could also be considered.

As you age, the more you should seek to control risk in your
portfolio. Oftentimes these buffered products are a good compromise
between a fixed investment that is not likely to keep pace with
inflation and investing in something like stocks, which have inherent
risks or are subject to volatility. Talk over your options with your
financial adviser to come up with a balance between the need for
growth and your ability or willingness to accept a certain level of

Make more money

Between savings taking a back seat and record-setting inflation, you
might just need to make more money to right your financial strategy.
Sometimes the only way to save more is to make more.

Now might be the time to ask for a raise or look for a new,
higher-paying job. The labor market is in your favor with companies
fighting to attract and retain talent. The study also found that 53%
of non-retirees have had to or expect to find a job that pays more
money due to the rising cost of living, so you’re not alone if you
fall into this camp.

Use your increased earnings to increase your savings. Sure, it means
you can spend more elsewhere too. Just be aware of lifestyle creep
detracting from your future goals.

Create a long-term plan and consult a professional

Creating a long-term financial plan will help you think in detail
about what you want those 20 to 30 retired years to look like. The
most important thing is that it has to be written down. Having a plan
in your head does not work. While there is online software that can
help, you really need to work with a professional who will create a
plan for you.

This takes work, which is why many people don’t do it. However, after
you put in the initial effort, your plan is an invaluable asset that
you can refer to, adjust and find comfort in as you move toward and
through retirement.

A well-written plan will also account for risks to that ideal future
in retirement. Risks like volatility, inflation, and longevity all
pose a threat to those plans. You can incorporate financial strategies
that can mitigate those risks.

Creating this document will determine strategies to set yourself up to
attain that retirement lifestyle you deserve. Your actions now will
dictate how you will secure those retirement goals. There is no
one-size-fits-all financial plan. These tips are in the “fits most”
category. Your financial situation would benefit from the detailed
assistance of a professional.

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