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Despite market volatility, high inflation and the threat of a recession, retirement super savers continue to make saving a top priority, according to research by Principal Financial Group.
The study found that more than half (59%) of survey respondents said they plan to save more than $20,000 towards retirement in 2022, compared to 51% in 2021. This is widely attributed with the majority of the segment described as “super savers” (82%) feeling in good shape to withstand a recession and the sacrifices they are willing to make in their daily expenses to maximize their retirement contributions, according to the survey .
With these lofty goals, it’s interesting to note that more than half of top super savers have earned less than $100,000 in the past year. Gen Z super savers were particularly targeted: almost 50% of them earned less than $35,000.
How they save
In most cases, super savers have focused on long-term financial sacrifices, not short-term reductions. Their main sacrifices included:
• Driving older vehicles (44%)
• Not traveling as much as they want (38%)
• Do DIY projects and household chores (36%)
• Own a modest home (35%)
It wasn’t all sacrifice, however, the survey noted. Super savers most often spend their discretionary spending on home improvement projects, then on travel, then on food purchases. Meanwhile, in the coming year, the most popular spending option for them is “going on vacation” (57%).
“Super savers have been digging in, saving aggressively in 2021 and are maintaining progress towards their retirement savings in 2022, staying on track and staying focused on their long-term savings goals,” said Sri Reddy, Senior Vice President, Retirement and Income Solutions at Principal Financial Group. “While worried about inflationary impacts and a potential recession, most (82%) are confident they are in good shape to weather the short-term impacts and continued market volatility. Overall, she added, they prefer long-term sacrifices to short-term cuts in their daily expenses to maximize their pension contributions.
And despite market volatility, they remain confident in their overall financial security (79%). “The youngest of our super savers, Gen Z, are gaining momentum in their savings habits,” Reddy said. “Since many of them earn less than $75,000 a year, they defer more than 15% of their salary to their retirement accounts.”
However, Reddy pointed out, their overall financial confidence could be boosted. They are looking for help balancing saving for retirement with saving for a home or other major purchases.
Why super savers save so much
Super savers are able to save a lot, regardless of income, because they are serious savers who prioritize retirement more than the general population, Reddy said.
“Many super savers stress in our survey each year how consistent preparation and staying on track with retirement planning and contributions is essential to achieving their savings goals. Super savers continue to save during periods of inflation and embody some of the best practices in retirement savings, giving them the emotional and mental strength to stick to their plans, even during periods of downturn. market uncertainty. They are generally undeterred by outside factors and have established positive saving habits early in life that allow them to stay the course regardless of the external environment.
Specifically, Reddy said, the survey found that 70% of super savers have an emergency savings account, with the majority of respondents having enough in those accounts to cover between three and six months of living expenses. On top of that, super savers are maximizing what they can contribute to employer-sponsored retirement plans, with 96% of super savers using these vehicles as part of their overall retirement planning. “These habits show that you can retreat for the long haul, while still living in the moment today (and not overreacting to market volatility),” Reddy said.
Sources of financial information
To achieve their long-term retirement goals, super savers primarily turn to financial institutions for help, according to the survey. Their #1 trusted source of information is a finance professional (48%). Financial company websites or mobile apps (40%) and pension service providers (37%) rank second and third, respectively.
Generations X and Y prefer all information from a finance professional above all else. However, Gen Z relies on family and friends first (55%).
how they invest
Even with declining markets this year, nearly half (45%) of super savers made no changes to their investments, while those who did chose to:
• Confirm that asset allocation is aligned with investment risk (34%).
• Review the asset allocation within the retirement account to ensure proper diversification (25%).
• Increase the amount invested in more aggressive investments (13%).
• Shift money from generally less risky investments to aggressive investments (11%).
• Shift money from declining investments to less aggressive investments (7%).
• Move money to more liquid assets such as cash, bonds or CDs (6%).
Research this year found that only about a third of super savers reported reliance on investments/stocks/dividends outside of their 401(k) or Roth IRA as sources of retirement income, Reddy pointed out. And when it comes to new digital currencies, 68% of respondents said they weren’t investing in trendy investments or hadn’t thought of them yet.
“For many super savers,” she says, “it’s more about consistent, regular investments they make in their savings that last over time.
The Principal Super Savers Study is an online survey conducted by Principal from June 24, 2022 to July 5, 2022. The super savers respondents included 1,120 retirement plan participants aged 18-57 with a savings behavior of:
• Contributing $17,550 or more to a pension plan in 2021 (33%)
• Defer 15% or more to their retirement plan (36%)
• Contributing $17,550 or more and deferring 15% or more to their retirement plan (31%)
Ayo Mseka has over 30 years of experience reporting on the financial services industry. She was previously editor of NAIFA’s Advisor Today magazine. Contact her at [email protected].
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