The current rate of monthly savings across America is currently at 4.6%. This means that most Americans are saving about 4.6% of their monthly income. This number is unusual as the average amount is almost double that number at 8%. Also, in June, this number dipped to a 15-year low of 2.7%. Economists are noting these numbers because it means that Americans are likely having difficulty saving in the current economic conditions.
While most people saved more money than they would have normally during the pandemic, there are some concerns that the extra money people had saved will now disappear. If a lot of your money is in cash, inflation can still find a way into your wallet. Remember, because the prices of things are increasing faster than normal, your money may not stretch as far as it used to, essentially making it worth less. Crucially, this can also make it difficult to save as much as you would like to. For much of America, that’s exactly the case—that 4.6% savings rate, down from 8%, is likely because people’s money isn’t stretching as far as it used to, and they are dipping into their reserves to maintain their lifestyle or cover their costs of living.
When it comes to retirement planning, it’s important to take a long-term view when it comes to issues of saving. While everyone’s financial situation is different, it is generally a costly decision to use your retirement funds as backup savings accounts before you retire. The issue with withdrawing from your retirement accounts if you are not yet retired is that they will be subject to many additional fees and taxes. If you haven’t reached the age of 59.5, you’ll face a 10% tax penalty for early withdrawal of a retirement account. Also, withdrawing from a traditional retirement account can also raise your income bracket and raise your income taxes for the year as well. It is important to keep these fees and taxes in mind when you’re deciding how to handle changes to your financial situation.
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.