Retirement Confidence Takes Biggest Hit Since Great Recession

​Persistent inflation, debt and market volatility are taking a hit on retirement accounts and driving steep declines in workers' confidence about their post-work savings.

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Both workers' and retirees' confidence in having enough money to live comfortably throughout retirement significantly dropped from 2022's numbers, falling to 64 percent from 73 percent among workers and to 73 percent from 77 percent among retirees, according to new data from the Employee Benefit Research Institute (EBRI) and research firm Greenwald Research. For the survey, the firms polled 2,537 people in early 2023—1,320 workers and 1,217 retirees.

"The last time a decline in confidence of this magnitude occurred was in 2008, during the global financial crisis," said Craig Copeland, director of wealth benefits research at EBRI. "This shows that the current economic climate—in particular, inflation—is eroding the confidence that Americans had in their retirement preparations going into the pandemic."

The report is concerning yet unsurprising as inflation has significantly dented employees' pocketbooks. The latest Consumer Price Index for all items rose 5 percent for the 12 months ending in March, before seasonal adjustment, the U.S. Bureau of Labor Statistics reported April 12. That's down from a 40-year high of 9.1 percent in June, although inflation remains stubbornly high—well above the Federal Reserve's target rate of 2 percent—and is still taking a toll on employees.

The EBRI survey is in line with other recent reports finding that retirement savings have suffered in recent months: One survey by Betterment at Work found that 28 percent of respondents dipped into their retirement savings to pay for short-term expenses. A report from Fidelity Investments found that 401(k) balances ended 2022 down 23 percent from 2021. And a January survey by U.S. News & World Report found that nearly half of Americans said they stopped saving for retirement in 2022 as increased costs for groceries, gas, housing and other routine expenses had a significant impact on their budgets and savings.

That report also found roughly one-third of the 2,000 workers surveyed said they dipped into their retirement funds last year—data that "shows a clear correlation between the rise of inflation and Americans' delayed or altered retirement plans," said Scott Nyerges, senior insurance editor at U.S. News' 360 Reviews.

Inflation and Other Factors

Inflation is the primary cause of fears about people's ability to save and contribute to retirement funds, the EBRI report found. The vast majority of workers (84 percent) and two-thirds of retirees (67 percent) said they are concerned that the increasing cost of living will make it harder for them to save money, while 4 in 10 workers and 3 in 10 retirees are not confident their money will be able to keep up with inflation in retirement, compared with the one-third of workers who felt that way a year ago. Americans' ability to finance their expenses is also in question, the survey findings suggest, as 73 percent of workers and 58 percent of retirees are concerned they will have to make substantial cuts to their spending as a result of inflation.

Debt levels and decreases in retirement accounts are other factors in the drop in retirement confidence, the EBRI and Greenwald Research survey found. More than 6 in 10 workers and 3 in 10 retirees report that their debt is a problem. Meanwhile, 40 percent of workers and 58 percent of retirees report that their retirement account balances have decreased over the past 12 months.

Lisa Greenwald, CEO of Greenwald Research, said half of retirees report that their overall spending is higher than expected, an increase over the one-third who said so last year, and the share of retirees who feel their retirement lifestyle is worse than they expected is slowly growing.

"Workers worry that their salaries won't keep up with inflation and report more debt, while retirees worry about cost of living and expenses," she said.