American workers need nearly 20 percent more in their 401(K) to have the same quality of life they would have had pre-Covid, an economist has warned.
Paul Mueller, a senior research fellow at the American Institute for Economic Research, said rampant inflation was hammering household savings and killing dreams of a comfortable retirement.
Despite the recent slowdown in annual inflation to 3.7 percent, down from last year’s high of 9.1 percent, overall prices remain nearly 20 percent higher than before the pandemic.
‘Between November 2020 and now, prices have risen by 17.9 percent when you look at inflation rates,’ he told DailyMail.com.
‘If you got back to pre-Covid, prices have gone up by 18.6 percent. It means people need almost 20 percent more money to have the same quality of life.
Paul Mueller, a senior research fellow at the American Institute for Economic Research, said households would need up to hundreds of thousands of dollars more money in their retirement savings to have the same quality of life pre-Covid
A survey by Bankrate last month found that more than half of workers felt they were ‘behind’ on their retirement savings
‘For somebody with a $500,000 retirement pot would need nearly $100,000 more today than before the pandemic.’
For somebody with $700,000 in savings, they would need an extra $129,500 to plug the shortfall. A worker with just $1 million would require $185,000.
On the other end of the spectrum, somebody $100,000 would need $18,500.
This year experts have repeatedly sounded the alarm over America’s ‘retirement crisis.’
The average baby boomer has $220,900 in their retirement pot, according to a report by investment firm Fidelity. This is effectively the same as having $180,034 before the pandemic.
And a survey by Bankrate last month found that more than half of workers felt they were ‘behind’ on their retirement savings. Some 25 percent said they had not made any retirement contributions in a year.
The trend is being driven by both inflation and higher interest rates which are putting unprecedented pressure on budgets and leaving workers unable to save.
And many are even dipping into their later life savings to make their current ends meet. Figures from Bank of America in August show the number of people taking ‘hardship withdrawals’ from their 401(K)s had shot up by 36 percent in the last year.
Mueller says there is no magic number for savings and it depends on living costs.
Across the 50 US states, the average annual income required for comfort was $68,000, according to a study from GOBankingRates
He told DailyMail.com: ‘Households need to think about the quality of life they want. Do you want the same standard of living you have now or are you happy to budget more in retirement? What is the cost of living like in the area where you want to retire?’
This week the IRS confirmed that savers will be able to add another $500 more per year to their 401(K)s and other retirement accounts.
These changes, the White House estimates, could help savers increase returns by between 0.2 percent and 1.2 percent per year – or boost retirement savings in a lifetime by up to 20 percent.
And the contribution limits on IRAs will also increase from $6,500 to $7000. Catch-up contributions remain unchanged for IRAs at $1,000.
In 2024, more Americans will also be able to contribute to tax-advantaged Roth IRA accounts. This year, savers can only contribute the full limit to them if they’re single and their income is less than $138,000 or a head of household and $153,000.