Inflation in the Covid-19 economy is taking a toll on the future purchasing power of America’s retirement savers, forcing employers to rethink the benefits they offer amid unprecedented changes in worker retention rates. I’m here.
July CPI data set many highlights for 2022, including a 6.2% social security adjustment and an increase in the cap on contributions to retirement plans equivalent to almost three years of recurring earnings. It produced an astounding prediction.
Meanwhile, recent reports indicate that a record number of companies are considering changing their health benefit packages.
Recruitment and retention are the main drivers, but even though the dollar is expected to decline in the future, companies are trying to ease the burden on workers by restructuring their retirement packages to help them make the most of the money they save. can be greatly reduced.
“This shows that employees need to take a step back and consider their current budgeting,” said director of U.S. defined contribution research at Mercer, an investment management subsidiary of the global professional services firm. Katie Hockenmeyer said.
Companies can consider introducing automated escalations or auto-registrations to increase company alignment or help vigilant employees save more, Hockenmeyer said. Some employers have begun tying the formula to annual increases in minimum retirement contributions set by the Internal Revenue Service.
40 year high
Hockenmeyer said it’s always been true that the dollars Americans are saving now won’t be much bigger when they’re cashed into retirement income years or even decades from now, but the The recession has made that gap wider than ever, Hockenmeyer said.
Adjustments in the cost of living for social security earners are one of the most obvious signals of inflation. Senior Citizens League policy analyst Mary Johnson said this could act as a precursor to inflation, increasing or decreasing by a dollar each year.
As such, other federal programs, such as Food Stamps and Railroad Workers’ Retirement Benefits, use Social Security numbers in calculating their own annual benefit changes. Even the private sector sometimes raises base salaries based on how much money Social Security recipients receive.
But Mr Johnson said he tries to stay ahead of the Bureau of Labor Statistics every year. She uses statistical analysis tools she created to fill in the missing consumer price index using only one or two months of actual data. Based on her CPI in July alone, Social Security recipients can expect a 6.2% rise, compared with her five-year average of about 1.3%, she said.
“COLA is something I’ve been working on for about 26 years, and it’s the highest estimate I’ve ever made,” Johnson said. “It will be the best COLA in 40 years.”
bad news for the rest
A significant increase in monthly Social Security benefits is good news for retirees using that money as their primary or supplemental income, but not for those saving for or nearing retirement. If her predictions are correct, older workers who were thinking of retiring in 2022 may want to retire this year to take advantage of the raise.
Young employees need to reassess how much of their monthly income they are hiding for retirement, she said, because the cost of goods and services rarely rolls back.
“A lot of things are competing for financial assets right now,” said Hockenmeyer.
Mercer already forecasts a 5.1% increase in the percentage of salaried workers transitioning to eligible 401(k), 403(b) and 457 retirement plans next year, compared to no change last year. . % increase YoY. Mercer cut nearly all minimum contributions to U.S. retirement plans, with the exception of catch-up contributions for senior savers, which were already subject to significant increases under legislation passed by Congress in 2019. We anticipate a record increase in limits.
That said, Brian Dress, a researcher and investment adviser at Left Brain Wealth Management in Chicago, said inflation caused by the global health pandemic is unlikely to overheat the economy forever. So savers don’t necessarily need to reassess their investment portfolios just because they had a bad year.
“We are currently facing temporary challenges, many of which are related to our supply chain,” says Dres. “Investments in commodities such as metals, mining and oil are flooding in, but we recommend sticking to companies with pricing power.”