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How Americans Can Maximize Retirement Savings

·7 min read
SmartAsset: 6 Tips Americans Follow to Maximize Retirement Savings
SmartAsset: 6 Tips Americans Follow to Maximize Retirement Savings

While inflation and market volatility loom over the U.S. economy, a new survey by Principal Financial Group shows that 59% of respondents plan to save more than $20,000 for retirement this year alone. Let’s break down what the survey says and how how respondents are coping with inflation and market volatility before providing six tips you can follow to maximize retirement savings.

A financial advisor could help you create a financial plan to boost savings and secure income for your retirement. 

What Principal’s Annual Super Savers Survey Shows

The 2022 edition of Principal Financial Group’s annual Super Savers survey shows that almost six in 10 respondents (59%) plan to save more than $20,000 for retirement this year.

The global investment management and insurance company says that this percentage is up from 51% in 2021. And it attributes the increase to a majority of respondents (82%) who are confident that they could endure a recession and make necessary cuts to daily expenses so that they could maximize retirement contributions.

“From continuing to save through an inflationary period to establishing long-term financial goals, Super Savers embody some of the best practices for retirement saving that gives them the mental and emotional strength to stick with their plans even during times of market uncertainty,” said Sri Reddy, senior vice president, Retirement & Income Solutions at Principal, in a press release.

The survey also points out that almost seven in 10 respondents (67%) prefer to make lifestyle changes over investment changes when it comes to dealing with inflation. These include adjusting entertainment and travel spending, as well as reviewing spending habits and monthly budgets.

And while the top financial priority in the 2021 survey was paying off debt, respondents in 2022 are focused on increasing retirement savings: 29% said they want to save more in an IRA and 25% want to increase contributions to employer-sponsored retirement plans.

How Different Generations Prepare for Retirement

SmartAsset: 6 Tips Americans Follow to Maximize Retirement Savings
SmartAsset: 6 Tips Americans Follow to Maximize Retirement Savings

Principal surveyed three generations of retirement plan participants online, adding up to a total of 1,120. Age groups included Gen X (46-57), Millennials (27 to 45) and Gen Z (18 to 26).

Participants contributed at least $17,550 to retirement in 2021 or deferred a 15% minimum of their salary to retirement plans. But their profiles were different, based on general financial milestones.

Gen X participants owned a mortgage on a home, earned over $100,000, increased retirement contributions and planned to save even more for retirement in 2022.

Millennials, by comparison, also owned a mortgage on a home, but earned under $100,000 and prioritized saving more in an IRA. Financial plans for 2022 included going on vacation.

Gen Z participants, on the other hand, rented their homes, made under $75,000, had car and student loans, and were saving for a big purchase like a home, car or vacation. Their top financial priority: reduce spending.

Generational groups differed mostly when it came to Social Security. The survey says that 60% of Gen X still counted on Social Security as a source of retirement income, while only 37% of Millennials and 23% of Gen Z believed the same.

Overall, savers from all three age groups were invested in employer-sponsored retirement plans (96%), followed by traditional savings accounts (59%) and Roth IRAs (51%). Other financial products used to save for retirement included traditional brokerages (47%), health savings accounts or HSAs (46%), traditional IRAs (32%) and high-yield savings accounts (28%).

How Americans Are Coping With Market Volatility

Even with stocks dropping on Wall Street this year, almost half of the survey respondents (45%) said they did not make any changes to their investments. But those who did, took different actions.

The biggest percentage confirmed that asset allocations were aligned with investment risk (34%), followed by those who made sure that asset allocations in retirement accounts were diversified (25%).

Respondents also took additional actions depending on specific financial circumstances:

  • Some invested in more aggressive investments (13%).

  • Others moved money from safer investments to more aggressive investments (11%).

  • Those experiencing a decline moved money to safer investments instead (7%).

  • Another group moved money t0 more liquid assets like cash, bonds or CDs (6%).

An additional note: When reviewing your investment strategy, take into account your risk tolerance and time horizon before adding investments to your portfolio.

6 Tips You Can Follow to Maximize Retirement Savings

Saving more than $20,000 for retirement in 2022 may be out of reach for many Americans. However, Principal says that these six practical tips can turn “almost anyone” into a super saver:

  1. Maximize your 401(k)/403(b) plan, or aim to put away 10% of your salary. If this is beyond your financial capacity, take incremental steps to reach your employer match and increase contributions every year or each time you get a pay increase.

  2. Make sure you create and maintain an emergency fund. Having enough money to cover unexpected bills is a crucial piece of your financial plan. But if you don’t have enough money to build a fund right away, you can start small and grow your balance over time.

  3. Try to live within or below your means. On the surface, this can sound like straightforward advice: Spend less than what you earn. As an example, respondents from Principal’s survey are cutting entertainment and travel expenses and reviewing monthly budgets. SmartAsset’s free budget calculator could help you keep track of your expenses.

  4. Pay off your credit card balance each month. Ideally, you should only charge what you can afford to pay off every month. Paying your credit card bill in full each time could benefit your credit score.

  5. Make a lifelong commitment to expanding your financial literacy. Even though there is a lot of financial information available today, financial literacy is not improving. A 2022 survey shows that almost one in four Americans got three-quarters of financial literacy questions wrong.

  6. Markets can go up and down but you should focus on long-term goals. Many financial experts will tell you that you can’t control the markets, but you can manage how you will react to upward and downward swings. Selling investments during volatile times could end up costing you significant gains—rolling 15-year average returns hover reliably around 10%.

One final takeaway: Participants relied primarily on financial institutions to execute on long-term retirement goals. Almost half (48%) said that financial professionals were their top source for financial information, while 40% consulted financial company websites and mobile apps, followed by 37% who worked with retirement plan service providers.

Bottom Line

SmartAsset: 6 Tips Americans Follow to Maximize Retirement Savings
SmartAsset: 6 Tips Americans Follow to Maximize Retirement Savings

Inflation and market volatility in 2022 are preventing many Americans from reaching their retirement savings goals. However, participants from Principal’s annual Super Savers survey aim to put away more than $20,000 in retirement savings this year. If this is outside of your financial capabilities, you can follow incremental steps to try to maximize your employer match on your retirement plan, pay off credit card debt and increase your financial literacy.

Tips for Retirement Savers

  • financial advisor could help you create a financial plan to protect your retirement savings and investments from inflation, market volatility and other financial challenges. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • If you need help figuring out how much your retirement savings will grow over time, SmartAsset’s free 401(k) calculator can help you get an estimate.

Photo credit: ©iStock/fizkes, ©iStock/mihailomilovanovic, ©iStock/PeopleImages

The post 6 Tips Americans Follow to Maximize Retirement Savings: Are You Keeping Pace? appeared first on SmartAsset Blog.