Bigger chunks of our paychecks are going to pay the bills as we juggle higher rent or housing costs, larger monthly payments on cars, and ongoing high prices on food, clothing and airfares.

Who wouldn’t be tempted to dial back how much money you set aside from each paycheck toward retirement? Throw cash in a 401(k) plan? When you need to make a car payment of $700 a month or higher? Or your rent just went up by $250 a month? At the very least, some people are thinking twice.

One in four adults — including those who are employed part-time and full-time — said they decreased their retirement saving in 2022 because of inflation’s impact on their finances, according to the newly released survey for the 2023 TIAA Institute-GFLEC Personal Finance Index.

Almost one half of those who decreased their savings — some 12% — stopped saving completely. Working women were a tad more likely to cut back or stop saving for retirement than men.

Saving for retirement takes a hit

Pulling back on retirement savings was extremely common among Hispanic workers — where 40% cut back on the amount of money they set aside in 401(k) plans and other retirement savings vehicles in 2022, according to the survey. In that group, 24% stopped saving. These figures were roughly double that among Asian, Black and white workers.

Among the youngest workers  — those falling into the Gen Z a group born between 1997 and 2012 — 26% decreased their retirement savings in 2022 and 15% stopped saving entirely, according to a new survey.

Among the youngest adults — those falling into the Gen Z a group born in 1997 and later — 26% decreased their retirement savings at work and 15% stopped saving entirely, according to the survey.

Among baby boomers — born from 1946 through 1964 — 25% decreased retirement saving in 2022, with 11% stopping saving entirely.

The Personal Finance Index survey, conducted by the TIAA Institute and the George Washington University School of Business, was completed online in January and involved a sample of 3,503 U.S. adults, ages 18 and older. Asians, Blacks and Hispanics were quota sampled for at least 500 respondents each. Gen Z was also quota sampled for at least 500 respondents, enabling cross-generational comparisons.

Inflation causes anxiety, makes it harder to pay bills

Andrea Hasler, assistant research professor in financial literacy at the George Washington University School of Business and Global Financial Literacy Excellence Center, said 30% of consumers surveyed noted that they’re having more difficulty making ends meet after dealing with high inflation. That’s up from 24% a year ago.

Consumers are more likely now to face financial difficulties after taking on debt. According to the survey, 26% of adults — compared with 20% a year ago — say their debt and debt payments prevent them from adequately addressing other financial priorities.

Another concerning issue: Consumers lack enough emergency savings to cover just one month of living expenses.

Those without even such minimal emergency savings jumped to 39%, up from 32% surveyed a year ago. Such a dramatic change indicates, according to researchers, that many people might have dipped into savings to deal with the increased cost of living.

“When inflation hits and everything gets more expensive, you have to cut somewhere,” Hasler said.

How tens of thousands of dollars can be lost

Stuffing less cash into a retirement nest egg is, frankly, a logical short-term response. One could argue that it’s better to use money from your paycheck to buy necessities, like groceries and gas, instead of just tapping into high-cost credit card debt at 20% or higher.

But eliminating 401(k) contributions is actually a terrible move in the long run.

Surya Kolluri, the head of the TIAA Institute, who talked with me via Zoom on Monday, said many times working people focus on keeping an extra $30 or $50 a week to cover immediate needs. Too often, they don’t add up the hit they’re taking for building up wealth when they stop saving for retirement.

Take someone who is making make $55,000 a year and working in a job where employer will match up to 3% of what employees save on their own in the 401(k). Your 3% is $1,650. And if you save that much, your employer is going to add another $1,650 into your 401(k).

“That’s a significant amount of money,” Kolluri said.

Stopping saving for just one year means that you’re actually not setting aside $3,300 that year — your savings and the company match. It also means that you’re giving up the opportunity for that money to compound over many years of investing.

Kolluri gave me one example where not saving for retirement for just one year, using this example, could add up to a $15,000 difference over 20 years of working. That assumes the saver invested in an S&P 500 index fund over that time

“These are big numbers,” Kolluri said.

No one can predict future returns in the market. Going back and looking at historical returns, though, someone who saves $3,300 each year from 2002 through 2022 would have $163,000 if the money was invested in the S&P 500, according to a historic calculator at AccurateCalculators.com.

Someone who saved for 19 years, starting in 2003, would see just $148,000 in their account, Kolluri noted.

Covering your bills is important but living paycheck-to-paycheck puts many people at financial risk if they lose a job in an economic downturn or if they want to cut hours or leave the workforce as they age.

Many people underestimate just how long they might live and end up saving less than they need for a comfortable retirement, according to data released in January through the Personal Finance Index run by the TIAA Institute and the George Washington University School of Business.

Wall Street has made savers nervous, too

Incredibly high inflation — brought on by pandemic-related supply chain constraints, stimulus cash, high consumer demand, and rising oil prices after Russia’s invasion of Ukraine — puts many people on edge.

The rough ride on Wall Street has been upsetting, too. On average, 401(k) balances held in Fidelity managed plans tumbled by 20.5% in the fourth quarter of 2022, compared with the same time a year ago, according to Fidelity Investments, the nation’s largest provider of 401(k) plans.

The average balance fell to $103,900 — down nearly $27,000 from average balances of $130,700 a year ago in Fidelity 401(k) plans. Average balances, though, were up 34% from 2012.

Surprisingly, many savers appear to be staying the course.

Mike Shamrell, Fidelity’s vice president of thought leadership for workplace investing, said nearly 55% of savers kept up with their regular pace of saving in 401(k) plans managed by Fidelity during 2022 but 11.2% decreased their savings at some point last year. The rest increased savings.

The people who saved less money into the plan, according to Fidelity, reduced their contribution by an average rate of 7.2%. Less than 2% eliminated their savings entirely, Fidelity said. Even though some dialed back, the majority did not stop contributing completely.

Even so, the percentage who cut back on savings is higher than in the past. Going back to 2017, Shamrell said, about 8.3% of savers cut back on their retirement savings then.

“Nothing that we would get super concerned about. It’s not like it’s doubled or anything like that. But it is a little bit higher than some previous time periods,” Shamrell said.

Fidelity’s latest research indicates inflation has triggered much anxiety. Across the globe, 74% of people indicated that higher prices are a source of stress for them.

Inflation has been growing at a slower pace but still remains high. Over the last 12 months through March, inflation rose 5%, according to the U.S. Bureau of Labor Statistics. Shelter rose at 8.2% over the last year; food rose 8.5% year over year; new vehicles rose 6.1%; and gasoline fell 17.4%.

Inflation peaked year-over-year at 9.1% last June — the largest increase in 40 years.

Given those price hikes, one might not be surprised to see some people cut back on retirement savings. What you might not expect is to see people actually saving more money.

Roughly a third of savers in Fidelity retirement plans at workplaces saved more money in 2022 than the year before. But much of that is due to special features in those workplace plans that automatically boost the savings rate of workers gradually each year.

Beginning in 2025, a new federal law — known as Secure 2.0 — will require companies with new 401(k) plans and 403(b) plans to automatically enroll eligible employees into those plans at a minimum contribution rate of 3%, but no more than 10%. The employee’s contribution rate will increase by 1% point each year up until it reaches 15%.

Beginning in 2024, plan sponsors will be able to offer emergency savings accounts linked to a defined contribution retirement plan, such as a 401(k) plan, for non-highly compensated employees. Contributions would be limited to $2,500 a year — or lower, as set by the employer. The first four withdrawals in a year would be tax-free and penalty-free.

The theory is that automatic saving — and yes a bit of inertia — is a good thing when it comes to putting aside money for short-term and long-term savings . If you set aside money out of a paycheck automatically, you might not notice that it’s missing and you might not bother taking any extra steps needed to put a halt to regular saving.

The problem with stopping your saving, of course, is that many people will drag their feet when it comes resuming consistent saving in the future. Many times, it’s better to just keep saving as best as you can.

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