The Inflation Effect: Americans Opt to Reduce Retirement Savings, Rely More on Debt

• 69% have not been able to contribute to their savings as much due to ongoing inflation
• 51% have taken on more debt because of inflation
• 67% are more concerned about paying bills than about their financial future
• 42% have withdrawn from their retirement savings because of inflation

Allianz Life study finds ongoing inflation is hampering Americans ability to prepare for their financial future, but many are optimistic inflation will subside.

Ongoing inflation has set back Americans’ ability to prepare for their financial future by causing them to reduce savings, take on debt and withdraw from retirement accounts, according to the 2024 Q1 Quarterly Market Perceptions Study* from Allianz Life Insurance Company of North America (Allianz Life).

Americans are more focused on their present finances than setting themselves up for the future. About two in three (67%) say they are more concerned about paying bills than about their financial future. Millennials (76%) are more likely than Gen Xers (64%) or boomers (50%) to feel this way. More Hispanic respondents (79%) than Black/African American (74%), Asian/Asian American (68%), and white (63%) respondents say they are more concerned about paying bills now.

Rising cost of living stretching budgets

Inflation could be a major factor driving this short-term outlook. The majority of Americans say that the rising cost of living has caused them to reduce their savings. Nearly seven in 10 (69%) say they have not been able to contribute to their savings as much due to ongoing inflation. Millennials (74%) were more likely than Gen Xers (69%) or boomers (63%) to say they have not been able to contribute to their savings as much because of inflation.

At the same time, many Americans are dealing with rising prices by taking on debt. The majority of Americans (51%) say they have taken on more debt because of inflation. More millennials (65%) than Gen Xers (49%) or boomers (31%) said this. And, more Hispanic (61%) and Black/African American (58%) respondents say they have taken on more debt because of inflation than Asian/Asian American (53%) or white (46%) respondents.

“The rising cost of living is stretching American budgets,” said Kelly LaVigne, VP of Consumer Insights, Allianz Life. “Just because inflation has slowed doesn’t mean prices have gone down. In the short-term, it may be wise to delay any major purchases to keep saving toward your future and avoid taking on new debt.”

Withdrawing from retirement accounts to make ends meet

It is worrying for long-term financial stability that many Americans have also withdrawn from retirement accounts. More than two in five Americans (42%) say they have dipped into their retirement savings because of inflation. Hispanic respondents (59%) were more likely than Asian/Asian American (51%), Black/African American (50%) and white (39%) to have withdrawn from their retirement accounts because of inflation.

Americans optimistic about inflation

The good news is that more Americans feel optimistic about inflation – 37% say they feel good about the direction inflation is heading, up from 31% last quarter. What’s more, fewer Americans expect inflation to get worse. While 74% said they expect inflation to get worse over the next 12 months in Q4 2023, 68% said the same in Q1 2024. This is the lowest percentage expecting inflation to get worse since 2021.

“Inflation isn’t going anywhere – over time the cost of living always goes up – it’s just a matter of how much and how fast,” LaVigne said. “You need a long-term plan for how to address inflation and make financial decisions on behalf of your future self. A financial professional can help you develop a strategy to manage inflation now and set you up for a strong financial future.”

Source: Allianz