Even Wealthy Retirement Savers Are Losing the Battle Against Everyday Bills

Remember when gas was under $4 a gallon and you could take the family out to eat without taking out a second mortgage? Ahhh, those were the days. 

As the cost of living rises, everyday expenses are eating into retirement savings. Americans currently participating in workplace retirement plans anticipate needing $1.2 million on average to retire comfortably, according to a Schroders survey released this month. However, just 30% believe they will reach $1 million due in large part to rising costs, debt and competing expenses. In fact, a third of those surveyed said they have more credit card debt than retirement savings. There are also signs that wealthier clients are feeling the squeeze. It’s a great chance for advisors to help clients prioritize spending to stay on track for retirement without overextending their resources today. 

“While many are still contributing to retirement, they’re finding it harder to increase their savings each year,” said Nathan Sebesta, an advisor at Access Wealth Strategies. “Retirement savings shouldn’t simply be what’s left over at the end of the month. It should be treated like any other essential bill.” 

Hands Off My Starbucks Latte

Lifestyle creep comes for us all, even the wealthy, said Bryan Byrer, founder of Millennial Financial Planning. “Just because people make a lot of money doesn’t mean that they’re always good at saving it.” Even if they’re making a high income, if their expenses are leaving them living somewhat closer to paycheck-to-paycheck than others, rising prices will certainly come into play. “They’re definitely going to feel that more than someone else who has a higher margin of savings,” he said.

Clients looking to rebalance their expenses can start with eating out: full-service restaurant prices have risen almost 4% since last June, according to the Consumer Price Index. “So many people eat out more than they really know they should or need to, and especially as the cost of goods goes up, that is more impactful than like the silly trope: ‘Get rid of your Starbucks latte,’” Byrer said. 

He also highlighted a few other strategies: 

• As the housing crisis deepens, renting longer may be a better choice than buying in the near term. 
• One client found hiring an au pair was more cost-effective than daycare. 
• Paying off credit cards daily lets clients earn points while always knowing their true bank balance. 

TIPS of the Iceberg. Even for those whose savings are on track, rising costs have made clients far more focused on earning returns that outpace inflation, said Gautham Jain, president of Jain Wealthonomics. That’s reshaping asset allocation and retirement income strategies: risk-averse investors are turning to Treasury Inflation-Protected Securities and risk-tolerant clients are increasing equity exposure and using TIPS in place of traditional cash-like assets. “This was not a viable factor for most clients when inflation remained low,” said Jain.