46% of the US's middle class workers are now slashing — or completely cutting out — contributions to their retirement funds. Why it's a bigger problem than they might think

The problem with scaling back on savings

Pausing retirement contributions may seem like a necessity for some middle-income earners. But for every month that goes by without adding money to your long-term savings, you miss out on an opportunity to benefit from compounded returns in your IRA or 401(k).

Imagine you typically contribute $3,000 a year toward long-term savings, but you don’t do that in 2024 because money is tight. If you’re 30 years away from retirement, failing to make that $3,000 contribution could result in $30,000 less in retirement savings because you’re missing out on three decades of gains.

This assumes your portfolio normally generates an average yearly 8% return, which is a bit below the stock market’s average.

Another issue with pausing retirement plan contributions: you may be missing out on free money if you have a 401(k).

In 2023, Vanguard reported that 95% of retirement plans on its platform offered an employer contribution.

Giving up a $3,000 contribution to your 401(k) for a year could mean losing out on that same amount from your employer. So, all told, that could leave you with $60,000 less in retirement savings down the line, not just $30,000.

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Is there a light at the end of the tunnel?

It’s easy to see why middle-income earners are struggling to fund their long-term savings these days. The good news is that, as inflation continues to cool, consumers should get relief from soaring prices, thereby freeing up money for their nest eggs.

Also, cooling inflation should lead to interest rate cuts on the part of the Federal Reserve. That could ease the cost of borrowing across products like loans, mortgages, and credit cards so that debt costs consumers less. That, too, could make it easier to find money for a retirement account.

Unfortunately, only 21% of those surveyed by Primerica think they’ll be better off in the next year. And given that inflation seems to be stuck in an elevated state, it may take some time before essential expenses become more affordable for the average worker.

That’s why it pays to talk to a financial advisor if you’re struggling to save for retirement in today’s economy. A professional can review your finances with you and come up with a savings strategy.

Joining the gig economy could also open the door to retirement plan contributions at a time when it feels like your income isn’t keeping up with your expenses. That extra money from a side hustle could not only help you fund an IRA or 401(k), but give you more of a cushion for near-term financial emergencies.