According to economist E.J. Antoni from The Heritage Foundation, retirement plans have seen a reduction of $2.5 trillion due to inflation, even with nominal increases in retirement accounts. The typical 401(k) account experienced a rise of $11,000 between 2021 and 2024. Nonetheless, once inflation is taken into account, this denotes a loss of $12,000 (9.2%) in actual value.
The decline has been driven by soaring inflation rates and increasing federal debt. Currently, retirement plans are estimated to hold a value of about $27 trillion when adjusted for inflation, indicating a significant real loss of $2.5 trillion compared to anticipated values.
Plans that included a heavy allocation to bonds were hit the hardest, as bonds faced their lowest returns since 1928. Many individuals who are close to retirement may find it necessary to extend their working years by an additional six years to recover from these inflation-induced losses. One important observation is that many people equate the stock market with the overall performance of their investments, including retirement funds.
“This is unfortunately not accurate,” claimed Antoni. Numerous retirees hold a considerable percentage of their savings in fixed-income investments, which have struggled over the past four years, offsetting any advancement made in the stock market. Inflation has surged by 20% since the beginning of President Biden’s administration.
Impact of Inflation on Retirement Plans
A recent survey by Bankrate revealed that 57% of American employees believe they are falling behind on their savings, while 48% are skeptical about achieving their retirement objectives. Antoni attributes the surge in inflation to “excessive and reckless federal expenditure.”
The national debt in the U.S. is anticipated to surpass $36.2 trillion by the end of the year.
The administration of Biden and Harris has also diminished the Treasury’s cash reserves by approximately $1 trillion. Antoni contends that government overspending has worsened the fiscal scenario. The report concluded that elevated federal spending has triggered an inflation shock, thereby diminishing the actual value of savings.
Continuing multitrillion-dollar deficits could lead to increased interest payments on the national debt, which may limit financing for programs like Social Security. Such a cycle of heightened borrowing alongside rising interest expenses could exacerbate inflation. “Cuts in government spending would ease inflationary strains, providing advantages for savers and retirees.
Effective spending restraint could also steer the deficit and national debt toward a more stable path,” the report noted. A recent survey from Nationwide indicated that more senior Americans are postponing or forgoing retirement plans due to persistent inflation. Over a quarter of non-retired investors expressed that they might have to re-enter the workforce if they were to retire in the next year.
An additional 19% are unsure whether they will ever manage to save enough for retirement or intend to delay their retirement plans because of inflation. The unpredictable economic environment has prompted numerous Americans to reevaluate the viability of their retirement aspirations in the context of these hurdles.
