How 'super savers' do it
It's not necessarily having a high income that helps these savers sock money away for retirement.
Despite the economic downturn triggered by the pandemic, some investors have put away even more money for retirement over the past 18 months
“The past year has presented challenges for all of us,” said Sri Reddy, senior vice president, retirement and income solutions, at Principal Financial Group. “One silver lining is that it seems to have honed the habits and focus of our top retirement savers. 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 plan participants who save 90 percent or more each year of maximum retirement contributions or defer 15 percent or more of their salary into retirement accounts.
In a recent survey of this group from generations X, Y and Z, more than half said they saved more than usual over the past 18 months. Forty-three percent saved the same, and only 3 percent saved less.
Through strategies such as reducing or eliminating long-term payments on homes and cars, this group reports little debt, 91 percent have an emergency fund and more are seeking to attain financial independence earlier in life.
The ability to save more is not simply a matter of having higher incomes. More than half of these super savers earned less than $100,000 in the past year.
Gen Z super savers were particularly focused: Nearly 50 percent made less than $35,000. In most cases, super savers focused on long-term financial sacrifices, not short-term cuts. Their top sacrifices included:
- Driving older vehicles (44 percent)
- Not traveling as much as they prefer (38 percent)
- Doing do-it-yourself household projects and chores (36 percent)
- Owning a modest home (35 percent)
Super savers applied discretionary spending most often to home improvement projects, followed by travel and then carryout food. Meanwhile, in the coming year the most popular spending option for super savers is to go on vacation (57 percent).
Nearly all super savers invest in a workplace retirement plan, with 64 percent of those invested in a traditional savings account. About 62 percent have some or all of their retirement savings in target date funds and 65 percent believe that target date investment options can help meet their personal retirement goals.
In terms of other investments within workplace retirement accounts, super savers are interested in guaranteed future income (66 percent), exchange-traded funds (53 percent) and managed accounts (45 percent).
“Many of our young top savers won’t have pensions to rely on and are concerned about the future of Social Security,” Reddy said. “It’s smart of them to be prioritizing guaranteed income streams for when they reach retirement age.”
A large number (36 percent) also are interested in environmental, social and governance (ESG) investment options.
More also dipped their toes into the latest investment trends. About 17 percent invested in non-traditional options such as cryptocurrencies and meme stocks, compared to 11 percent in 2020. Nearly a quarter of Gen Z investors used these options.
When super savers think about their retirement, they see themselves taking a phased approach. They still want to work after 65 but in a role outside their main career, with fewer hours (41 percent).
That compares to just 32 percent who plan to retire full-time and 15 percent who plan to work at full-time jobs, but with less stress and responsibility.
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