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How Much Can You Save for Retirement in 2022?

How Much Can You Save for Retirement in 2022?

The stock market is going to soar and stock values are going to double in 2022! Wait. We’re just messing with you. But did your heart skip a beat? What if we said the market is going to crash and burn in 2022? How would you be feeling?


The point is, most of us have emotions tied to our investment accounts. We get it. The balance in your retirement account represents your ability to retire with dignity.

But hey, don’t let each rise and fall of the stock market give you heartburn. If you invest for the long haul, your money will grow because the historic trend of the stock market is up. One bad year won’t kill you. So relax and take fear and emotion out of the equation.

No one can predict the future. Will a fourth or fifth (we’ve lost count!) wave of COVID-19 hit this winter? Will the price of bacon (say it ain’t so) and other foods we love continue to rise? Will home prices stabilize? Truthfully, we don’t know for sure. (No one does.) But in this investment outlook, we’ll look at some important economic indicators and see what they might tell us about what’s to come in 2022.

The one thing we do know is that no matter what happens in 2022, you control your financial future. It’s your job to save and invest for retirement. No one’s going to do it for you.

Ready to dive in? Let’s do this!

How Much Can You Save for Retirement in 2022?

The IRS is raising 2022 contribution limits to adjust for inflation. So how much you were allowed to invest in 2021 will be slightly higher in 2022.

  • The IRS is raising the annual contribution limits for employer-sponsored retirement plans to $20,500 (up from $19,500 in 2021). This includes folks who contribute to a 401(k)403(b)most 457 plans and the federal government’s Thrift Savings Plan.
  • For those who are nearing retirement and need to catch up, you can also put in an extra $6,500 into your plan if you’re age 50 and older!

What about the annual limit for IRAs? That stays the same at $6,000—and that goes for Roth and traditional IRAs. If you’re age 50 or older, the catch-up contribution limit will also remain at $1,000, so you can put up to $7,000 into an IRA in 2022 if you’ve fallen behind on your retirement savings.

One last thing before we move on: You’ll be able to save just a little bit more in your Health Savings Account (HSA) if you have one. For 2022, you can save up to $3,650 (that’s a $50 increase) while families can put $7,300 (a $100 bump from last year) into their HSAs. It’s a really small change, but it’s something!

What Are Economic Indicators?

Economic indicators are just some statistics and trends that give us insight into how the economy is doing and where it might be headed. That’s the short and sweet of it. Think of these economic indicators as thermometers that help us keep an eye on the temperature of the overall economy.

Here are six of the major economic indicators to keep an eye on in 2022:

  1. Stock Market
  2. Housing Market
  3. Interest Rates and Inflation
  4. Unemployment Rate
  5. Consumer Confidence
  6. Gross Domestic Product

Let’s take a look at these indicators and find out what they could mean for you and your money.

1. Stock Market

The stock market is kind of like your local supermarket—the biggest difference is instead of buying bread and milk you’re buying and selling stocks, which are basically small pieces of ownership in a company.

The S&P 500 Index measures the performance of the 500 largest, most stable companies in the New York Stock Exchange. The S&P 500 is considered the most accurate measure of the stock market as a whole. When this index increases, the economy is usually doing well. Still with us?

You know we're always telling people that the stock market is like a roller coaster—full of ups and downs that can make your head spin. Well, the stock market in 2021 has been on a steady climb. Let’s take a quick look back at what happened—and what we can expect moving forward.

s&p performance 2022 outlook

The stock market charged ahead to new heights during 2021 following the crash of March 2020 due to COVID-19 shutdowns. By August 2020, the S&P 500 was back to pre-pandemic levels. As the COVID-19 vaccine rolled out and more people got back to work, even huge spikes in COVID-19 cases due to the Delta variant didn’t slow the growth of the S&P 500. It has had a few dips, but as of November, it was up about 25% for the year.

For 2022, analysts (as of November) from Goldman Sachs and Wells Fargo are predicting slower growth of around 9%.4 Morgan Stanley is predicting a 6% drop by the end of 2022.5 So even the experts have differing opinions on what 2022 will hold.

All of this confirms what we’ve always said about investing: No matter what the stock market is doing, stay focused on the long term, avoid making decisions out of fear, and keep saving for retirement (as long as your financial situation is stable).

Political parties and presidents may rise and fall, but the stock market has a long history of moving upward. The historical average annual rate of return for the stock market according to the S&P 500 is 10–12%. Stay focused and keep putting money in your 401(k), your Roth IRA, and do not cash them out “just in case.”

2. Housing Market 

So, now that we’ve taken a look at what’s happening with the stock market, what’s in store for the  market? It’s been pretty crazy in 2021, with fierce competition among home buyers.

Here are a few trends you should be aware of as we move into a new year:

  • Low housing inventory means fewer options for home buyers. So if you’re planning to buy a home, you’re still going to have to be quick on the draw, but maybe not as quick as earlier in 2021The National Association of Realtors (NAR) expects home inventory to increase in 2022 as homebuilders build more homes (despite supply chain problems) and mortgage payment forbearance programs end.7 About 1.6 million homeowners signed up for the government’s forbearance programs, which started to phase out in August.8 Some experts believe a significant number of homeowners who exit forbearance might decide to sell their homes to take advantage of the hot housing market or because they can’t afford to pay their mortgage.9
  • Home prices are still going up, thanks to high demand. That’s music to the ears of home sellers! In September 2021, the median home price was about $353,000—a 13.3% increase from a year earlier.10 The NAR expects home prices to rise at a slower pace in 2022.11
  • Interest rates could rise in 2022. The good news for potential home buyers: Rates are near record lows. The rate for a 30-year fixed-rate mortgage is hovering near 3%, while the rate for a 15-year fixed-rate mortgage is about 2.25%.12 We recommend a 15-year mortgage because it will save you tens of thousands of dollars in interest over the course of repaying your loan. The bad news: Some economists believe the Federal Reserve will increase interest rates in 2022 to try to slow inflation.13 We’ll talk about that more in just a minute.

So if you’re selling a home in 2022, high demand coupled with low interest rates could land you a really good deal. What if you’re planning to buy a home? Our advice is simple: Be patient. Save up a good-sized down payment and make sure you buy a house you can afford—with a monthly payment that’s no more than 25% of your take-home pay. The last thing you want to do is get stuck with a crazy-high mortgage payment.

Whether you’re buying or selling a home, get in touch with one of our real estate professionals. They know your housing market like the back of their hand and can help you buy or sell your home with ease!

3. Interest Rates and Inflation

Okay, hang with us here. The Federal Reserve (aka the Fed) is the U.S. central bank in charge of the nation’s policies on money. The Fed has two main goals: grow the economy at a sustainable rate and keep inflation (rising prices of everything from gas to milk) under control.

The Fed has several ways to achieve its goals, but one of its main tools is raising and lowering interest rates. Lowering interest rates can give the economy a boost because it makes people and businesses more likely to borrow and spend money. But if too many dollars are chasing too few goods, prices rise, and that’s called inflation.

Raising interest rates can slow inflation down because it encourages people to spend less and save more. But if rates are too high, they can choke economic growth. When interest rates are high, businesses tend to spend less, and this could also lead to higher unemployment. So the Fed tries to find a balance that’s just right.

With the economy going through the wringer in 2020 due to COVID-19 shutdowns, the Fed has kept interest rates anchored near 0%. But it appears likely the Fed will raise rates in 2022 to try to slow inflation, which has risen quite a bit in 2021.14 Higher interest rates usually affect the profits and growth of companies, so this could lead to lower stock prices.

According to a study done by Ramsey Solutions, 21% of Americans say inflation has had a significant impact on their finances.15 So here are some smart ways to deal with inflation.

First, stay calm! Don’t panic buy a bunch of food, gas and other stuff (toilet paper). Second, you need to adjust your budget for higher prices. This means you might have to cut back on some things in order to pay for necessities. Look for ways to save money by using coupons, buying generic brands or carpooling. Third, keep investing for retirement.

No matter how high or how low interest rates are, borrowing money for things like a car loan or a home equity loan is always a bad idea. We want interest to work for you, not against you. Debt isn’t your friend. It takes your time and money, and it gives you headache and heartache in return.

4. Unemployment Rate

This next one is easy. Each month, the unemployment rate tells us how many people got (or lost) a job. It’s one of the clearest ways to see which way the economy is moving. Rising unemployment is scary—that means fewer people are working, which weakens the economy. Lower unemployment means more people are finding work and the economy is getting stronger . . . which is what we all want.

The pandemic turned the jobs market upside down and millions of workers saw their jobs disappear overnight (at least for a little while). At its highest point, the national unemployment rate hit 14.7% in April 2020. That means at one point, there were 23.1 million people out of work.

unemployment rate 2022 outlook

The jobs market has slowly recovered from the pandemic, and the unemployment rate for October 2021 was 4.6% (representing 7.4 million people).18 Before the pandemic, the unemployment rate was 3.5% (representing 5.7 million people).19

Though lots of companies have open positions, some people have been slow to return to work due to the fear of COVID-19. Others have seen a shift in their priorities and have decided not to rejoin the workforce. Some analysts expect unemployment numbers to drop below 4% by mid-2022 and to return to pre-pandemic levels by the end of 2022.20

So, what does all that mean for your investments? Well, as hiring picks up, that means more growth for companies. If you didn’t panic and stayed invested in mutual funds with stocks from those companies, you can expect your portfolio to get a boost from lower unemployment.

5. Consumer Confidence

You can usually tell when someone feels confident. They walk with their head held high, they puff out their chest, and they have a swagger in their step. They also tend to spend more and save less! Well, that last part is what the Consumer Confidence Index says, at least.

The Consumer Confidence Index is a survey done by an organization called The Conference Board. The index measures how everyday Americans feel about the economy. When people are confident, they typically spend more money. When their confidence is low, they do the opposite.

The Consumer Confidence Index increased in October 2021, a sign that consumer spending will continue to spur economic growth through the end of the year.21 A Ramsey Solutions survey confirms that trend. It found that 80% of Americans are planning to spend the same or more on Christmas in 2021.22 They’ll spend $641 on average.23

6. Gross Domestic Product

Gross domestic product (GDP) is the value of all goods and services produced within a country during a specific time period. The GDP of the United States is a huge number: about $20 trillion a year!

GDP growth is a key measure of the health of a country’s economy.

In 2021, the U.S. economy roared back from its pandemic lows. GDP is on pace to grow by 5.5% by the end of the year.24 It’s incredibly rare for GDP to be above 5%, and the last time it topped 4% was 2000.

Analysts expect GDP to dip to around 3.5% growth in 2022, but this is still higher than the normal growth rate of 2–3%.25

A healthy economy that is growing is another bit of good news for the potential growth of your investments in 2022!

Here’s the Bottom Line

The key to building wealth is consistency. That’s the thread that ties millionaires together.

No matter what’s going on in the world, millionaires keep working hard and putting money away. They don’t get distracted. They don’t put their hard-earned money in a flashy investing trend they don’t fully understand. They don’t panic every time the stock market has a bad day.

And one day, they look up and see their nest egg has hit the seven-figure mark. Now that’s what winning looks like. And there’s no reason that can’t be you someday.

Need More Investment Advice? Find a Pro!

We hope this information gives you more confidence about investing and the economy. But we’re guessing you probably have more questions about your particular situation. While we can’t speak into the specifics of your financial plan, the good news is you can sit down with an investment professional in your area who can.

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