Helping employees navigate retirement planning during high inflation

With the U.S. already in the middle of a retirement savings crisis (according to the Federal Reserve Board, only 36% of non-retirees think their retirement saving is on track), the current period of high inflation is making a challenging situation even more difficult for many people. In fact, 21% of Americans have reduced their retirement savings because of inflation and a quarter of Americans will need to delay their retirement, according to the most recent BMO Real Financial Progress Index.

Concerns about how high inflation will impact their retirement savings or even delay their timetable for retiring can create additional pressures for workers at a time when many are already feeling stressed. In fact, a recent survey of U.S. adults commissioned by the American Psychological Association found that the top source of stress was “the rise in prices of everyday items due to inflation,” cited by 87% of respondents.

Start with the basics

How can employers help? First and foremost, by offering a retirement savings benefit if they don’t already. There are more affordable options than ever for companies of any size to provide a retirement savings plan, which has become a necessity for recruitment and retention. A recent Paychex survey of U.S. employees found that 62% of respondents identified retirement plans as one of their top three most important benefits offerings that would make them more likely to stay at their organization long term. 

Employers that offer a retirement savings benefit should review all HR benefits and policies, with an eye toward making adjustments or additions that can help employees save money, which they could potentially put into a retirement savings account. These changes might include providing higher than planned wage increases, a work from home option to reduce transportation costs, a greater percentage of corporate contribution to employees’ retirement plans, or new health benefit options.

Another way employers can provide support is by offering financial wellness and planning programs from an outside resource. To ensure that the content matches the needs and interests of employees, it’s a good idea to survey them on a regular basis about the financial planning topics and issues they most want to learn about. When it comes to managing through high inflation, financial and benefits experts can provide information and insights to help empower employees to make the best budgeting and planning decisions—balancing the short-term need to save money with the long-term need of saving for retirement. 

Guiding employees through the storm

During a high inflationary period, employees may very well be tempted to reallocate money they have been putting toward saving for retirement into paying for immediate expenses. That approach, however, should be avoided if at all possible. Instead, encourage employees to: 

• Stay the course, rather than wait for inflation to end; slowing or stopping contributions to retirement savings can derail established retirement planning strategies and timetables.
• Be mindful of the ebbs and flows of inflation, which often happens so slowly individuals forget that their cost of living in retirement will be far higher than they estimate while they are working. Fortunately, with the current high inflation rate, more people are aware of the impact inflation will have on future costs and savings.
• Plan responsibly, as a way to create safeguards and be positioned to maintain current standards of living in the future. 

With inflation rising to levels not seen in 40 years, many people are in uncharted waters as they think about their retirement savings strategy. Employers can help by providing information, resources, benefits, and support that enable their people to make retirement planning decisions that are right for their unique situations.

Michael Majors is the Vice President of Human Resource Services (HRS) Sales at Paychex.