• Robert Ryerson

The Retirement Landscape Outlook for 2022: What You Need to Know

The start of a new year presents an opportunity to reevaluate existing life goals and establish new ones. Some people might strive to eliminate bad habits or set personal fitness goals, while others might pursue career advancement opportunities. Regardless of age, working adults should also make it a priority to examine their financial situation and determine what they need to do to put themselves on track for a comfortable retirement.

The retirement outlook for 2022 in the United States, however, is rather complex. Inflation was a key economic concern in 2021 due in large part to global supply chain issues brought about by COVID-19, but most notable economists expect rising prices to subside in 2022. Moreover, the US economy grew at a rate that hasn't been seen since 1984.

Yet, COVID-19, supply chain issues, and a sharp decline in government relief could present major economic challenges. In addition, a recent survey conducted by the Federal Reserve found that only 36 percent of non-retired adults felt they were on track to have enough money saved by the time they retire. Below is a look at four trends concerning retirement planning in 2022.

Retirement Savings Gap Increasing

The aforementioned adverse economic conditions in 2021 have dramatically increased the retirement savings gap in the US. T. Rowe Price's 2022 U.S. Retirement Market Outlook study lists the savings gap as an estimated $4 trillion, meaning American retirement savers have a combined $4 trillion shortfall compared to what they need for a comfortable post-working life.

In addition, the retirement savings gap affects women at a greater rate than men. Women earn less than men on average, take more time away from work to care for children or family members, and require more money for retirement as they have a longer life expectancy. Sixty percent of women, compared to 51 percent of men, said they were worried they wouldn't have enough money saved for a secure retirement in a February 2021 survey conducted by the National Institute on Retirement Security.

Addressing the Retirement Coverage Gap

The retirement coverage gap was another major concern highlighted in T. Rowe Price's 2022 U.S. Retirement Market Outlook. Nearly 40 percent of all workers in the US are not covered by defined contribution (DC) retirement plans, despite the fact that these are the most prevalent retirement savings vehicles. Only 51 percent of Americans working at small businesses with fewer than 100 employees are covered by DC plans.

"Simply put, many smaller companies cannot afford to offer the existing type of traditional retirement plans," notes Lori Lucas, president and CEO of the Employee Benefit Research Institute (EBRI), speaking to PlanAdvisor.com. "It is positive that the SECURE Act created a new marketplace for pooled employer plans, which was a great step, but we can do even more to improve coverage, for example passing the SECURE Act 2.0, which will further streamline and incentivize participation in PEPs."

Lucas was one of several industry experts who spoke about the pressing need for DC reforms at a March 2021 hearing hosted by the Senate Health, Education, Labor and Pensions Committee. She noted EBRI research suggests that just having access to a DC plan can improve retirement prospects by as much as 50 percent. Women and workers of color are disproportionately impacted by the retirement coverage gap.

Importance of Financial Wellness for Employee Engagement

Employers need to be more cognizant of employees' financial situations and be more willing to adopt financial wellness programs in 2022. The COVID-19 pandemic has forced many Americans to withdraw from their retirement accounts or collect taxable government benefits and loans that need to be repaid at a later date. As a result, nearly half of all workers reported at least moderate levels of financial stress in the T. Rowe Price study. Additional studies have suggested those in this position miss 44 percent more work time due to absence than those without financial concerns. Similarly, workers with financial stressors have lower engagement levels (24 percent) than those without (46 percent).

The majority of workers rely on their employers for support in achieving their retirement savings goals. Comprehensive financial wellness programs that include educational components can help in this regard, especially considering the impact the pandemic has had on Americans' interest in financial literacy. According to T. Rowe Price, views of online content concerning financial wellness, especially on topics such as managing debt and emergency savings, increased 20 percent from 2020 to 2021.

Inflation Concerns among Retirees

While it is true that many experts consider inflation a temporary problem, consumer prices are still expected to rise in 2022. This is a larger concern for retirees than workers as the former live on fixed incomes. Workers, meanwhile, can at least theoretically receive wage increases to counteract cost of living increases. A 2019 Society of Actuaries survey listed "savings not keeping up with inflation" as one of the three primary risk concerns among retirees and this has been exacerbated by the pandemic.

The Social Security cost-of-living adjustment (COLA) increased 5.9 percent in 2021. This marked the largest increase since 1982. However, this is only enough to cover a portion of rising prices for food, homeownership, utilities, and rental housing. Moreover, low-income beneficiaries will receive a smaller net COLA increase. A retiree with a $600 Social Security benefit, for instance, will receive a 2.3 percent net COLA.