401K Reality Check: The Realities of Retirement For Muslims
In today's world, the idea of a comfortable retirement has become more of a dream than a reality for many Americans. Please don't take our word for it, though. The Employee Benefit Research Institute ran its annual retirement confidence survey, and the results speak for themselves.
“Compared with 2022, both workers’ and retirees’ confidence have significantly dropped and returned to levels last seen in 2018. The last time a decline in confidence of this magnitude was observed was in 2008 during the global financial crisis”
As of today, confidence levels towards retirement amongst both workers and retirees are at their lowest since 2018¹. As we explore the root causes - rising inflation, growing retirement costs, and limited retirement funds - behind this nationwide confidence gap, the importance of having the right investment strategy and partner has never been more apparent.
Inflation and Retirement: The Battle for Your Savings
Bureau of Labour Statistics (BLS) Inflation rate projection for 2024²
In 2024, the Bureau of Labor Statistics (BLS) expects an inflation rate of around 3.1%². Many people don't realize the effect this has on one's retirement fund. If your investments aren't keeping pace with the annual inflation rate, you're essentially losing money. For many, especially those relying on low-yield savings accounts that offer minimal returns, this situation translates to a savings account that is slowly being chipped away year after year.
Now, for us in the Muslim community, the challenge doesn't stop there. Our faith guides us to steer clear of Riba, making our investment choices somewhat limited and with the lack of Riba-Free Retirement Solutions available, it can sometimes feel like the deck is stacked against us.
The Rising Costs of Life
They say a rising tide lifts all boats; well, in this case, that tide is inflation, and that boat represents your retirement living expenses.
“Americans Estimate they’ll need $1.3 Million to retire comfortably”
In fact, many Americans now estimate that they'll need at least $1.3 million to retire comfortably³. What does comfortably mean, however? That answer will vary from person to person, but what we can all agree on is that we all need a place to live, food to eat, and treatment when life takes its inevitable toll. Unfortunately, due to inflation, all of these basic living expenses will surge upwards, leaving many Americans and members of our community feeling unprepared for the financial realities of retirement.
The Consequences of Poor Saving Habits
If you had to guess the percentage of retirees worried about their retirement due to having little or no savings, what would that number be? You might be surprised to know that according to the Employment Benefit Research Institute’s (EBRI) confidence survey, 25% of retirees feel unprepared for the future due to having little to no savings¹.
EBRI Retirement Confidence Report 2023¹
This lack of preparedness can be attributed to many factors, including the high cost of living associated with inflation, poor saving habits leading up to retirement, and a lack of understanding of available investment options. Whatever the case, not having enough in the bank during one's golden years can quickly turn the retirement you've always dreamed of into a nightmare.
It's Never to Late
The challenges we've listed are difficult to hear, but they are the realities of what retirement looks like in the modern day if you fail to take the appropriate steps. However, there is light at the end of the tunnel in the form of the right investment strategy and partner to help you navigate towards a brighter future aligned with your financial goals and faith.
By choosing a Halal⁴ IRA (Individual Retirement Account) with one of Wahed's portfolios, you can begin to take the first few steps toward the retirement you've always envisioned without having to compromise your principles. At Wahed, our goal is to provide our community with the highest-quality, Riba-free retirement solutions that can one day bring a future free from financial worries.
Remember that it's never too early to start saving for tomorrow. As you navigate the complexities of retirement planning, know that we are here to support you every step of the way.
If you'd like to learn more about how our halal IRAs can help you on your retirement journey, follow the link below.
Disclaimers:
*Consult with your tax or financial advisor before implementing any plan changes as your situations may vary.
Sources:
1. Employee Benefit Research Institute (EBRI) - Retirement Confidence Report 2023: https://www.ebri.org/docs/default-source/rcs/2023-rcs/2023-rcs-short-report.pdf - Page 14
2. Bureau of Labor Statistics (BLS) - Inflation Rate Projection for 2024: https://www.bls.gov/opub/ted/2024/consumer-prices-up-3-1-percent-from-january-2023-to-january-2024.htm
3. CNBC - Survey on American Retirement Savings: https://www.cnbc.com/2023/09/08/56percent-of-americans-say-theyre-not-on-track-to-comfortably-retire.html
4. Halal: The term 'Halal' denotes that it is permitted and follows Islamic law.
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As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.
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