Despite the global pandemic and market volatility, young retirement “super savers” put away even more money over the past 18 months, proving that it doesn’t necessarily take higher earnings to improve retirement readiness.
Among the top retirement savers from Generations X, Y and Z, more than half (54%) said they saved more than usual over the past 18 months, while 43% saved the same and only 3% saved less, according to the Principal Financial Group’s annual “super saver” study.
Through strategies such as reducing or eliminating long-term payments on homes and cars, this group reports little debt, 91% have an emergency fund, and 10% more than in 2020 are seeking to attain financial independence earlier in life, the study notes.
“The past year has presented challenges for all of us. One silver lining is that it seems to have honed the habits and focus of our top retirement savers,” says Sri Reddy, Senior Vice President, Retirement and Income Solutions at Principal. “Whether it was the pressure of uncertainty, or just their natural tendency to look toward the future, this group managed to save more amid disruptions to both their professional and personal lives.”
Principal defines “super savers” as Gen X, Y and Z retirement plan participants who save 90% or more of the IRS maximum or 15% or more of their income for retirement. Principal conducted the online survey from July 5–12, 2021, among 1,408 retirement plan participants ages 19-56 with savings behavior of: 61% contributing $17,550+ to their employer sponsored retirement plan in 2020 and 30% deferring 15% or more.
Sacrifices and Splurges
How did this group of savers improve their retirement outcomes? For more than a third (36%) of the group making the maximum contributions, it was when they became eligible to participate in their employer-provided retirement plan. Another quarter commenced savings as soon as they started their first job as an adult.
The study also emphasizes that it wasn’t necessarily through higher earning power. More than half the of super savers made less than $100,000 in the past year, and nearly half of the Gen Z contingent made less than $35,000. Principal notes that, in most cases, super savers focused on long-term financial sacrifices, not short-term cuts, which included:
- Driving older vehicles (44%)
- Not traveling as much as they prefer (38%)
- Doing DIY household projects and chores (36%)
- Owning a modest home (35%)
Nearly a third (32%) of super savers also said their parents had the greatest influence on their saving habits. Of that group, 83% said their parents are/were savers and 33% said their parents created guidelines and rules related to finances they followed as a child.
Investment Decisions
Not surprisingly, nearly all (95%) super savers invest in a workplace retirement plan, with 64% of those invested in a traditional savings account. Nearly 62% have some or all their retirement savings in target date funds (TDFs) and 65% believe that target date investment options can help meet their personal retirement goals.
As for other investments within workplace retirement plans, super savers are interested in guaranteed future income (66%), exchange-traded funds (53%) and managed accounts (45%).
A smaller percentage (36%), however, expressed interest in ESG investment options. And only about 17% invested in non-traditional options such as cryptocurrencies and meme stocks, but that’s up from 11% in 2020. Nearly a quarter (22%) of Gen Z investors used these options, according to the findings.
The top investment fears of super savers are focused on market volatility, rate of return not keeping up with inflation and an extended period of negative investment returns. Moreover, nearly 4 in 10 are interested in ongoing advice from a financial professional, while nearly a third are interested in advice from online tools that personalize their investment mix.
Phased Retirement
When super savers think about their retirement, they apparently see themselves taking a phased approach. Principal notes that they still want to work after 65, but in a role outside their main career with fewer hours (41%). That compares to nearly a third (32%) who plan to retire full-time and 15% who plan to work at full-time jobs, but with less stress and responsibility.
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