Inflation is running at a 40-year high, and more Americans are feeling burdened and rethinking financial plans. Inflation is currently at 8.3% and Americans are facing higher prices for food, housing, fuel, and more.
Twenty-five percent of Americans say they’re postponing retirement due to inflation, according to a new BMO Harris Bank report. More than a third of consumers who earn $250,000 a year say they’re living paycheck to paycheck, according to a survey by Pymnts.com and LendingClub.
Based on typical benchmarks, some high-end earners may have overspent on their housing: A mortgage on a $1.7 million home with a 20% down payment, for example, would cost $100,000 per year. That would make up 40% of a $250,000 pre-tax income, according to Bloomberg. Most financial analysts advise limiting housing costs to 30% of income.
As inflation rises, more Americans say they’re dipping into their savings accounts, according to the BMO Harris Bank report. The survey found that 36% of Americans have already seen their savings drop due to inflation.
The average consumer today is spending $500 more a month on living expenses over a year ago, according to research conducted by the National Association of REALTORS® in April.
Consumers nearing retirement age say they are dining out less, cutting back on shopping, and driving their cars less frequently due to higher costs, the BMO Harris report finds. Only 22% of Americans say they feel like they have enough saved for a comfortable retirement, down from 26% a year ago, according to a separate survey by Schroders, an asset management firm. More than half of the survey respondents said they expected to have less than $500,000 in savings by the time they retire. However, most people said an average of $1.1 million would be an ideal retirement fund.
“Consumers must think differently about their finances in this inflationary environment,” says Paul Dilda, head of consumer strategy for BMO Harris Bank.
Younger Americans also are being hit hard by inflationary pressure, Dilda says. They tend to have fewer savings and so large ticket items like a home and car may put even more pressure on their finances, he adds.