With the overall cost of living and necessities rising, most Americans find that their income doesn’t stretch as far as it used to. Expectations for the future have shifted to keep pace with the increasing price of maintaining the same quality of life.
The fear of a looming recession has eased from 2023 to 2024, but Americans of all ages and income levels remain worried about their future. Many feel increasingly unprepared to manage their finances through retirement as savings diminish and personal debt climbs to an all-time high.
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Northwestern Mutual’s 2024 Planning & Progress Study found that one in three Americans don’t feel financially stable, an increase from 2023 and the highest level since the study began in 2009. More than half (52%) think household income is rising slower than inflation, with 51% agreeing that inflation is the biggest obstacle to financial security.
Concerns about the economy (43%), lack of savings (31%), and personal debt (27%) are also top barriers to financial security, indicating that the cost of living has reached a tipping point for most households. Many are bracing for impact when planning for their retirement; the amount consumers think they need to retire comfortably is surging, rising faster than inflation and increasing more than 50% since the start of the pandemic.
Consumers are off track with retirement planning, savings, and debt payments
U.S. adults anticipate needing $1.46 million to retire comfortably, up from $1.27 million in 2023 and just $951,000 in 2020.
Millennials estimate the highest amount of retirement savings needed at $1.65 million, followed closely by Gen Z at $1.63 million. Gen X estimates a similar total of $1.56 million, but Baby Boomers estimate they will only need a modest $990,000 to retire and live comfortably. This stark contrast could result from generational spending habits or indicate how rising living costs have disproportionately impacted younger generations.
Unsurprisingly, the gap between current retirement savings and the desired retirement amount has never been more significant. In 2020, the average retirement gap was $864,000, as opposed to nearly $1.4 million in 2024.
A retired couple is seen holding hands and walking on a beach. A new study finds that people have concerns about retirement goals.
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Baby Boomers have the smallest retirement gap of $870,000, while Gen Z, Millennials, and Gen X have gaps between $1.45 and $1.65 million. Though Baby Boomers are the most on track to meet their retirement goals, it is unsettling that the average American is so far away from living comfortably in retirement — especially for those approaching it quickly.
Compounding the issue, consumers are increasingly forced to focus on paying down debt instead of saving money. Even in just the past two years, there has been a 7% decrease in those saving money and a 7% increase in those prioritizing paying off debt. There is also less understanding of how much one can spend in the present while saving for the future and less direct planning for paying down personal debt.
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As 59% of U.S. adults admit they’re spending the same or more in 2024 than they did in 2023, many are taking a “defensive” approach to money rather than an “offensive.” 56% plan to cut costs, and 51% plan on building savings to help alleviate financial stress. 46% of Gen Z and 43% of Millennials also plan on implementing a side hustle to bring in supplemental income.
However, focusing on strategic stock market investment (42%) is the favored method for those taking an offensive approach toward money management, particularly among Gen Z and high-net-worth individuals. Only 21% of Americans indicate interest in real estate investment and high-yield bonds, and an even lower 17% are interested in alternative assets like cryptocurrencies.
Political instability is making Americans concerned for their finances and future
Though economic recessions are cyclical, a few notable external political factors may exacerbate financial concerns. Americans are more concerned than ever about the indecision and lack of cohesion from elected government officials, fearing it could negatively impact their financial well-being.
34% of U.S. adults believe that government dysfunction is one of the main factors affecting financial well-being, second only to inflation. The 2024 U.S. presidential election (33%) and current geopolitical conflicts (14%) are also at the top of the minds of uneasy consumers.
Related: Dave Ramsey explains how your mortgage is key to early retirement
In keeping with this sentiment, the Conference Board’s Consumer Confidence Index began to drop in February 2024, with Americans citing a heated political environment and a cooling labor market.
The Conference Board’s Chief Economist, Dana Peterson, confirmed, “February’s write-in responses revealed that while overall inflation remained the main preoccupation of consumers, they are now a bit less concerned about food and gas prices, which have eased in recent months. But they are more concerned about the labor market situation and the US political environment.’”
Since then, the Consumer Confidence Index has continued to drop, from 106.7 in February to 100.4 in June 2024. Consumers have been less concerned about recession risk but more concerned about their family’s financial situation — both current and future. While the share of respondents noting they believe the 2024 election would impact the economy is lower than that in June 2016, it is higher than that in June 2020.
This demonstrates that while additional factors are at play, the current political climate is not doing anything to ease the minds of consumers already stressed out by their personal finances.
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