By: Russ Kamp, Managing Director, Ryan ALM, Inc.

I suspect that most Americans wouldn’t be surprised to read that the US Middle Class continues to be impacted most negatively by four decades high inflation. According to a WSJ article, “purchasing power from paychecks fell 2.9% for middle-income households in 2022 compared with 2021”, as food and energy price increases impacted this cohort to a greater extent than those at both the top and bottom of the income spectrum. The median household income was $70,784 in 2021. However, increases in costs associated with housing, childcare, food, energy (household utilities), medical insurance, etc. are crushing the average American. Yes, inflation may have fallen from peak levels established this past Summer, but it is still running at levels that exceed both wage growth and the Fed’s 2% target. What have those most impacted done? Not surprisingly, they have withdrawn money from their “retirement” funds.

A new survey from Betterment which polled 1,000 full-time U.S. employees, found that 28% tapped into their 401(k) plans to help cover increasing expenditures in the last year. Incredibly, 71% of those polled are feeling more anxious about their retirement prospects, with 88% of those claiming that inflation and an increased cost of living have increased their financial anxiety. Regrettably, 24% of respondents indicated that they had reduced contributions to their retirement accounts. Another 41% said that they don’t have any funds saved for emergency purposes, which tells me that an unexpected major expense will have that subset tapping their “retirement” assets, too.

Let’s hope that the recent passage of the Secure Act 2.0 which includes the creation of emergency side pockets will help stabilize some of these financial conditions. No one knows how 2023 will play out, but it is critically important for all Americans, especially those in the Middle Class to see inflation near the Fed’s target. Let’s hope that the Fed’s forecast of US unemployment increasing from the current 3.7% level to an estimated 4.6% in 2023 doesn’t materialize or worse, exceed that estimate.