One of the reasons to save for retirement is to make your golden years less stressful and more enjoyable when it comes time to retire. And it’s nice to see some progress, isn’t it? When you check your retirement account balance, you feel one step closer to a leisurely, peaceful few decades ahead.

Well, sometimes.

Not always, and especially not since the beginning of the year…

Overall, those of us saving for retirement here in America took a big hit heading into 2022. According to a report from Northwestern Mutual, on average our savings dropped about $9,000, despite the post-pandemic impulse to save more money!

One well-documented response to the pandemic has been the impulse to save, and the 2022 Planning & Progress Study backs that up – a solid majority (60%) say they’ve been able to build up their personal savings over the last two years, and 69% of those say they plan to maintain their new saving rate going forward. That said, year-over-year numbers show that while savings levels remain high, they’ve dropped 15% from last year.

Average amount of personal savings in 2021 – $73,000

Average amount of personal savings in 2022 – $62,000

"There could be several factors contributing to the drop in savings from last year, ranging from spiking inflation to people spending more as they resume some sense of normalcy in their lives," added Christian Mitchell, the chief customer officer at Northwestern Mutual.

The report showed that, even two years later, some American households are still recovering from pandemic and lockdowns. Some 43% believe they have made up at least some of the lost ground:

• 10% say they made up all of it and more, and they are now ahead of where they expected to be financially
• 12% say they made it up entirely and are fully back on track financially
• 21% say they made up some of the ground lost in 2020 but are not fully back on track financially yet

To adopt a pessimistic perspective, here we are, two whole years after the 2020 pandemic panic and only 22% of Americans are “fully back on track financially” or better off than they were before.

That means the vast majority, 78%, are still fighting through the economic hangover of the pandemic panic. That’s astonishing!

That same Northwestern Mutual study uncovered what looks like some pretty notable backsliding in financial planning discipline compared to the prior year.

Here are the behavioral changes reported, comparing 2021 to 2022:

• Reduce living costs/spending: 22% decline
• Pay down debt in 2021: 35% decline
• Increase investing: 42% decline
• Increase use of tech to manage finances: 31% decline
• Regularly revisit financial plans: 41% decline

These trends indicate that “making up lost ground” from the financial carnage that took place over the last two years is not a high priority compared to last year.

This is bad news. This more-or-less reflects the expectation that, now everything is “back to normal,” all those good habits like reducing spending and paying down debt are no longer as important.

This kind of short-sighted thinking reminds me of one of my former business associates who was very proud of his Mercedes-Benz S-Class convertible, dark emerald green, all-leather interior, a very very nice car. He drove it to work every day with the top down. He left it at the front of the parking lot every day, where he could see it from his office window (and if there wasn’t a spot free, he’d make his own). Now, it doesn’t rain much in Los Angeles, but it happened often enough that I’d notice him running to the elevator to get downstairs and put the convertible’s top up.

The fourth or fifth time, I asked him, “Dave, why don’t you just put the top up every day?”

He looked at me like I was stupid. “Come on, it doesn’t rain every day.”

On the one hand, he was right. (We only get rain 30 or 35 days a year.) Putting the top up every day on the 1-in-10 chance of a cloudburst ruining his fancy upholstery might’ve seemed like a waste of time. On the other hand, well, it just takes one unexpected event to totally wreck the interior of his car permanently.

Which is better: to develop a disciplined approach to your finances, and sticking to it, regardless of what the weather looks like? Or changing that approach when a storm front rolls in?

I'm not here to judge. These are both valid approaches to solving the problem (so long as Dave always keeps an eye on the sky and nothing surprises him). The "stick-to-it" solution appeals more to me personally, because I don't like making important decisions under pressure. I like making plans and following them. But that doesn't mean plans shouldn't ever change! Especially when we find ourselves in fundamentally different situations.

Because our financial lives weren’t only disrupted by the pandemic! Our nation’s historically-generous use of the money-printer set the stage for a much longer-term problem…

Forty-year-high inflation makes “transitory” damage permanent

Inflation is the “tax no one voted for (and everyone pays).” That also means it affects everyone to varying degrees. That includes the people who might believe they are making up lost ground financially, especially after the last two years.

It’s easy to get confused! For example, when CNBC tells us that wages and salaries grew by 5% this year compared to a year earlier, that sounds great! A five percent raise means more money in the bank.

Which is true. What most people don’t realize is that 5% growth doesn’t factor in the rising costs we saw over that same period. The latest Bureau of Labor Statistics report tells us:

From April 2021 to April 2022, real average hourly earnings decreased 2.3 percent.

“Real” average earnings include both pay hikes and inflationary price rises.

Even though there’s more money in the bank compared to last year, today’s money buys less than it did last year.

Your paycheck might be up 5%, but your spending power is actually less than it was before. The worst part is, this loss of buying power is permanent.

Here’s how I explained this before:

Consider our imaginary friend Arthur. He nets $100 per month. After year of 5% inflation, Arthur’s monthly money buys 5% less. Next year, it turns out the inflation spike really was transitory, so the inflation rate goes to 0%.

Here’s the thing: Arthur’s monthly income STILL buys 5% less.

It’s as if Chairman Powell reached into Arthur’s pocket and stole $5 every month. Forever.

Once again, and this is important, you can’t get back spending power lost to inflation. (Unless you have a time machine.)

That’s why I once wrote that saving $1 million for retirement is meaningless. You simply can’t measure tomorrow’s expenses in today’s dollars, because today’s dollars are being steadily eaten away by inflation.

That’s why it’s crucial for everyone planning to retire one day to decide for themselves how to preserve as much buying power as possible going forward…

No matter how close you are to retirement, you can do this

We are living through a crazy time, indeed. Being responsible for your own financial future has never been more difficult, more complicated or more crucial for your own success.

Fortunately, there’s some good news. One way to endure even the craziest times in human history has remained consistent. It’s called resilience.

Here’s one definition I like:

Resilience is the process and outcome of successfully adapting to difficult or challenging life experiences, especially through mental, emotional, and behavioral flexibility and adjustment to external and internal demands.

I think resilience means changing your plans as circumstances dictate. Once you realize that inflation threatens your financial future, you can take steps today to preserve your buying power in your golden years.

Inflation-resistant investments can help you maintain your buying power. In historical terms, diversifying your savings with physical gold and silver can possibly help even more.

If you need help putting your plan together, you can start here. If you feel you have a solid plan, you could also consider building more resilience into that plan for the future – whether the weather stays sunny or not.
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Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver. Based in the Los Angeles area, the company has been in business since 2003. It has an A+ Rating with the BBB and hundreds of satisfied customer reviews.