By Brian O’Connell

Americans are doing what they can to deal with skyrocketing inflation.

According to a new survey from New York Life, U.S. adults say they’re cutting back on dining out, and are pushing back big-ticket items like vacations, buying a car, or buying a home. That’s understandable, as consumer prices are up 8.5% on a year-to-year basis through April 2022.

Americans are also curbing their emergency fund contributions, partly to keep focusing on long-term retirement savings, which haven’t hit the chopping block — yet. According to New York Life, monthly household savings contributions are falling by $243 (and $289 by millennials), yet 72% of respondents still expect to retire at their desired age.

Keep the Retirement Train Rolling

With so many Americans whittling away at the household budget, should retirement plan contributions be on the chopping block next?

No way, say investment experts.

“Lost good habits take a long time to recreate,” said Paul Tyler, chief marketing officer at Nassau Financial Group in Hartford, Conn. “It’s much better to learn how to live on less now than live with regret later.”

According to Tyler, when you stop contributing to a retirement fund, you lose a valuable money-growing tool — compound interest.

“Depending on the growth rate of your savings in the future, the compound effect – both positive and negative – can be eye-popping over a twenty-year period,” he said. “So even with the occasional downturns, putting money in a 401(k) or an annuity could prove to the best hedge yet against inflation.”

Other money managers say that retirement funding should be deemed as a major household financial priority, just like food, mortgage payments, and health insurance.

“It’s a big concern when I hear people tell me that they should cut back or reduce their retirement contributions,” said Ashley W. Folkes, director of growth at BridgeWorth Wealth Management. “I like to talk to clients about their financial priorities, very similar to a hierarchy of needs pyramid, as funding retirement is very much foundational to their futures.”

Unless you can’t put food on the table and gas in the tank to get to work, Folkes advises looking at the budget to find other ways to reduce costs.

“Cutting our back on retirement contributions may feel like the easier, softer way to reduce cost, but it can be detrimental,” he said. “It’s very similar to trying to time the market. We don’t know how long inflation will stay at these levels.”

“You’re not only missing out on putting money into a bucket to fund your future, you’re also missing out on buying funds when they are cheap,” he added.

If You Have to Cut Retirement Savings, Try This Approach

Preston P. Forman, a certified financial planner with Seasons of Advice Wealth Management in New York, said he has yet to see clients reduce retirement contributions. But if you have to cut long-term savings, take a short-term mindset.

“For most of this century inflation has been an afterthought but I expect some people will trim their 401(k) contribution,” he said. “After the pandemic, no one is in the mood to deprive themselves of anything.”

Forman advises clients to reduce, not eliminate, retirement contributions if necessary and then reevaluate in three months.

“By then often the storm has passed, and it’s a lot easier to increase a contribution from 10-to-12 percent than from 0-to-12 percent,” he said. “The funny thing is that many clients who were going to cut their contributions never get around to doing it. And that’s a good thing, ultimately.”