Tackling the trend

Dealing with Inflation's Negative Effect on Employee Retirement Planning

An August 2022 survey from Nationwide Retirement Institute found that 40 percent of workers ages 45 and older plan to delay their retirement due to inflation and rising living costs. That figure is double the percentage of workers who said they delayed retirement last year due to the Covid-19 pandemic. Although the current inflationary environment presents a host of retirement plan challenges for both employers and employees, tackling the trend with prudent and sensible solutions remains the best course of action.

Inherent Costs to Employers

The 2022 Nationwide In-Plan Lifetime Income Survey indicates that 36 percent of private-sector employers say workers’ delayed retirements have affected their ability to hire new talent. In addition, 34 percent of employers said delayed retirements have affected the promotion of young workers, and 35 percent said they have made their health benefits plans more expensive.

Nationwide also found employers are reporting that delayed retirements are affecting their employees’ well-being. The data shows that among employers:

  • 30 percent reported lower team morale
  • 29 percent reported negative effects on employees’ mental health
  • 27 percent noticed lower workforce productivity
  • 22 percent reported negative effects on employees’ physical health

The study also found that only 58 percent of workers have a positive outlook on their retirement plan and financial investments, compared with 72 percent in 2021.

Potential Solutions to Consider

The survey found that 66 percent of all employees cited inflation as a top retirement concern, versus 53 percent in 2021. General education campaigns, in partnership with your plan advisor and recordkeeper, should continue to be prioritized and promoted. Focused topics for consideration include defining inflation and current contributing issues and factors, historical contexts, managing inflation risk in your portfolio, and staying the course over the long term. These topics could be supplemented with information on general financial wellness, such as budgeting and managing spending, paying down high-interest debt, and building an emergency fund.

In addition, plan sponsors may want to consider ways to further support their older workforce and improve their confidence in meeting their income needs as they near retirement. The Nationwide report shows growing interest from workers in lifetime income investment options. According to the data, 53 percent of all employees ages 45 and older are interested in guaranteed lifetime income investment options included as part of a target-date fund, compared with 42 percent in 2021; 48 percent reported they are interested in contributing to such investment options as part of a managed account; and 41 percent would likely roll over retirement savings into a guaranteed lifetime income investment option if they had the chance.