Inflation has cut $2.5 trillion from retirement plans, despite nominal growth in retirement accounts, according to economist E.J. Antoni from The Heritage Foundation. The average 401(k) plan grew by $11,000 from 2021 to 2024. However, when adjusted for inflation, this represents a $12,000 (9.2%) loss in real value.
High inflation and skyrocketing federal debt contributed to this decline. Retirement plans are now worth roughly $27 trillion when adjusted for inflation. This marks a real loss of $2.5 trillion from expected values.
Plans with significant bond allocations suffered the most, as bonds had their worst returns since 1928. Many nearing retirement may need to work an additional six years to offset these inflation-driven losses. The biggest takeaway is that people often look at the stock market as a representation of all investments, including retirement.
Unfortunately, this isn’t the case,” said Antoni. Many hold substantial portions of their retirement savings in fixed-income assets, which have performed poorly over the last four years, negating stock market gains. Inflation has risen by 20% since President Biden took office.
Inflation erodes retirement plan values
A new Bankrate survey found 57% of American workers feel behind on their savings, and 48% doubt they will meet their personal retirement goals. Antoni blames the inflation surge on “runaway, profligate federal spending.”
The U.S. national debt is projected to exceed $36.2 trillion by year-end.
The Biden-Harris administration has also reduced the Treasury’s cash reserves by around $1 trillion. Antoni argues that government overspending has exacerbated the fiscal situation. The report concluded that high federal spending has caused an inflation shock, reducing the real value of savings.
Continued multitrillion-dollar deficits could increase interest payments on the federal debt, potentially limiting funding for programs like Social Security. This cycle of increased borrowing and higher interest payments could further inflame inflation. “Reductions in government spending would alleviate inflationary pressures, benefiting savers and retirees.
Sufficient spending restraint could also bring the deficit and federal debt onto a sustainable trajectory,” the report stated. A recent Nationwide survey revealed that more older Americans are delaying or abandoning retirement plans due to chronic inflation. Over one-quarter of non-retired investors said they might need to return to work if they were to retire within the next year.
Another 19% doubt they will ever save enough to retire or plan to retire later than expected because of inflation. The uncertain economic landscape has led many Americans to reconsider the feasibility of their retirement goals in light of these challenges.
