The current rate of monthly savings across America is currently at 4.6% of gross income. This is a little unusual. Going back to 1959, the average is closer to about 9%.[1] The current economic environment is making it difficult to save, and you’re not alone if you feel pinched.
Savings reached an all-time high in the first year of the pandemic, but concerns are arising that those hard-won savings are at risk of depletion. As the US battles inflation, the purchasing power of our dollars is declining and the money we have saved isn’t stretching quite as far as it used to. More than that, replenishing savings accounts is tougher than it was as everyday expenses creep higher. Maintaining a health savings rate, or even a health savings account balance, is increasingly difficult.
This brings up thorny issues when it comes to your retirement planning. Reduced savings rates can imperil your retirement and delay that date at which you achieve financial independence. Worse, withdrawals from retirement accounts can completely derail you. It may feel right in the moment to use a retirement account as a backstop to your savings accounts, but this is generally quite costly. Withdrawing prior to reaching age 59.5 generally incurs a 10% penalty that stacks on top of the taxes you will owe on the distribution. The distribution could push you into a higher tax bracket as well, and you also lose out on the compounding you could have received on that distribution! It’s important to keep these fees and taxes in mind when you’re deciding how to handle changes to your financial situation.
There isn’t a silver bullet to keeping pace with inflation and maintaining your savings rate. If you’re pinched, you’re pinched! What is important is keeping a cool head and maintaining a long-term perspective. If you’re retired, it may be worthwhile to give your portfolio a second look and consider securities that tend to hedge well against inflation, such as TIPS or an increased exposure to equities. If you’re still working, negotiating for higher pay or delaying retirement (less good) may also help stem the losses caused from high inflation and reduced savings rates.
If you are looking for help with your finances and are trying to find ways of protecting yourself and your investments from the creep of inflation, our professional financial advisors can provide you with advice and strategies to make sure that you know exactly how your decisions will affect your accounts. Reach out to us today for a complimentary review of your finances.
Carmichael Hill & Associates, Inc. is a U.S. Securities and Exchange Commission Registered Investment Advisory firm. Registration does not imply that the SEC has endorsed or approved the qualifications of Carmichael Hill or its respective representatives to provide any advisory services. Advisor does not render or offer to render personalized investment advice or financial planning advice through this medium. Advice can only be given after:
Delivery of a disclosure statement by advisor to client.
Execution of our Investment Advisory Agreement between the client and the advisor.
Initial payment of the planning fee or investment advisory fee by the client to the advisor.
Advisor will not solicit or accept business in any state in which she or he is not properly registered or otherwise qualified to conduct business by virtue of a state “de minimis” exemption.
DISCLAIMERS
The information in this web site is based on data gathered from what the Advisor believes are reliable sources. It is not guaranteed as to accuracy, and does not purport to be complete and is not intended as the primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. The identification of specific funds and model portfolios is being made on the assumption that the investor would participate in that investment or portfolio on a long-term basis and only after consulting with their investment advisor to determine their needs and tolerance for risk. With respect to any such identification, there can be no assurance that the fund or model portfolio will in fact perform in the manner suggested.
The results do not represent actual trading due to the timing of the clients’ trades and their trading costs. They may also not reflect the impact that material economic and market factors might have had on the advisor’s decision making if the advisor were managing the clients’ money. Investment and portfolio results may be different than the results the advisor’s discretionary clients achieve due to the timing of trades and the market conditions.
All references that might be made to an investment or portfolio’s performance are based on historical data and one should not assume that this performance will continue in the future.
LINKS DISCLAIMER
At certain places on this Carmichael Hill & Associates, Inc. Internet site, live ‘‘links’ to other Internet addresses can be accessed. Such external Internet addresses contain information created, published, maintained, or otherwise posted by institutions or organizations independent of Carmichael Hill & Associates, Inc. CHA does not certify, endorse or control these external Internet addresses and does not guarantee or assume responsibility for the accuracy completeness, efficacy, timeliness, or correct sequencing of information located at such addresses. Use of any information obtained from such addresses is voluntary.
