Inflation in the U.S. is running at a 40-year high and the rising prices its causing means many Americans are having to rethink their finances and future plans.
With inflation currently at 8.3%, people are facing higher prices for food, housing, fuel and most other goods and services.
Now, a new report from BMO Harris Bank has looked at the implications of those higher costs on the lives of Americans. Worryingly, some 25% of respondents in a survey told the bank that they’re postponing their retirement plans due to higher living costs.
The finding comes after a second survey by Pymnts.com and LendingClub revealed that almost one third of consumers who earn $250,000 a year say they’re forced to live from paycheck to paycheck.
The survey authors said that, based on typical benchmarks, some higher earners may have overspent on their housing. For instance, a mortgage on a $1.7 million home with a 20% down payment would cost $100,000 a 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 found. 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,” said Paul Dilda, head of consumer strategy for BMO Harris Bank.
Younger Americans also are being hit hard by inflationary pressure, Dilda added. 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.