After two years that challenged workers personally and financially, COVID-19 began to ease. Then gasoline prices soared and markets became turbulent. Inflation is the leading obstacle to saving for a comfortable retirement this year, followed by keeping up with monthly expenses, stock market volatility, and unexpected costs.

People may understandably feel uneasy, but even in this challenging environment, investors can take steps to protect their retirement.

Manage Expenses

One of the most reliable indicators of whether workers are on track for retirement is how much they set aside from their paychecks. Reducing this "deferral rate" should be a last resort, along with early 401(k) withdrawals. Both actions could undermine one of the most powerful retirement saving strategies: growing your investment returns over the long term.

But continuing to save may be easier said than done in today's economy. Inflation is affecting workers' spending and saving habits. If you are not already tracking your income and expenses, now is a good time to start. You will be able to identify the "nice-to-haves" in your budget, such as dining out and entertainment, as a starting point for cuts if needed so you can keep saving.

Reduce Debt

There is no doubt that debt is a major—and, needless to say, discouraging—barrier to retirement. The benchmark federal funds interest rate is near historic lows. But already this year, 2022, the Federal Reserve has raised rates by more than 2 percentage points, and further increases are expected.

As a result, carrying variable-interest-rate debt, such as credit card balances, has become significantly more expensive for consumers. So it bears repeating: the faster you pay off your credit card balances, the sooner you can prioritize saving and investing. Start with the highest interest rate to avoid paying more later, and consider refinancing any adjustable-rate loan, such as your mortgage, into a fixed rate.

Save for Rainy Days

Save for a Rainy Day

We know that simply cutting expenses is often insufficient to protect the saving habits established in easier times. However, this challenge reminds us to set money aside when we can for future financial crises. An emergency fund can soften the impact of medical costs, major repairs, job loss, or other unpleasant surprises so you can avoid drawing down your retirement savings.

It is prudent to keep three to six months of basic living expenses in an accessible account. That is a lot if you are starting from zero, but even a small monthly contribution to an emergency savings account can help you out of a future bind, or at least soften the blow.

Market Volatility: Do Not Be Afraid

For many of us, falling markets are unsettling, but what matters is what you do with that feeling. Just remember that panic will never be a good strategy.

It is not surprising if you feel tempted to hit the brakes or move your 401(k) investments into cash, but think carefully before selling off your portfolio or reducing your savings rate. First, knowing when to enter and exit the market is nearly impossible, even for professional investors. Second, the vast majority of 401(k) participants have stayed invested so far.

The data show that if you are consistent with your saving, you will survive rainy days—even the storm.

Ask for Help

It can be frightening for retirement savers, but remaining invested in a diversified portfolio is still a sound strategy, especially for those with many years until retirement.