Despite economic volatility, retirement ‘super savers’ stick to priority, study finds

Despite market volatility, high inflation and the threat of a recession, retirement “super savers” continue to making savings a top priority, according to a study 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, which is up from 51% in 2021. This is largely attributed to the majority of the segment described as “super savers” (82%) feeling confident they are in good shape to endure a recession and the sacrifices they are willing to make to their daily expenses to maximize their retirement contributions, the survey said.

With these lofty goals, it is interesting to note that over half of Principal Super Savers made less than $100,000 in the past year. Gen Z super savers were particularly focused: Nearly 50% of them made less than $35,000.

How they save

In most cases, super savers focused on long-term financial sacrifices, not short-term cuts. Their top sacrifices 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%)

It wasn’t all sacrifice, however, the survey noted. Super savers put discretionary spending most often to home-improvement projects, then travel, and then carryout food. Meanwhile, in the coming year, the most popular spending option for them is “to go on vacation” (57%).

“Super savers dug in, saved aggressively in 2021, and are maintaining progress towards their retirement savings in 2022, keeping focus and staying the course on their long-term savings goals,” said Sri Reddy, senior vice president, retirement and income solutions at Principal Financial Group. “While they are concerned with inflationary impacts and a potential recession, most (82%) are confident they are in good shape to endure any short-term impacts and ongoing market volatility. Overall, he added, they favor long-term sacrifices over short-term cuts to their daily expenses to max out their retirement 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 saving habits,” Reddy said. “With many of them earning less than $75,000 per year, they defer more than 15% of their salary to their retirement accounts.”

However, Reddy pointed out, their overall financial confidence could use a boost. They’re looking for help in balancing saving for retirement and saving for a house or other large purchases.

Why super savers save so such

Super savers are able to save a lot regardless of how much they earn because they are serious savers who prioritize tucking away for retirement more than the general population, Reddy said.

“Many super savers stress each year in our survey how consistent preparation and staying the course with retirement planning and contributions are crucial to reaching their savings goals. Super savers continue to save through inflationary periods and embody some of the best practices for retirement saving, which give them emotional and mental strength to stick with their plans, even through periods of market uncertainty. They are generally not deterred by outside factors, and established positive savings habits early in life that enable them to stay the course, no matter 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 these accounts to cover between three to six months of living costs. On top of this, super savers max out 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 go to show you can tuck away for the long-term, while still living in the moment today (and not reacting too emotionally to market volatility),” Reddy said.

Sources of financial information

To execute on their long-term retirement goals, super savers are primarily looking to financial institutions for support, the survey said. Their No. 1 trusted source for information is a financial professional (48%). Financial company websites or mobile applications (40%) and retirement plan service providers (37%) placed second and third, respectively.

Generations X and Y both prefer information from a financial professional above all else. However, Generation Z relies on family and friends first (55%).

How they invest

Even with markets down this year, nearly half (45%) of super savers have made no changes to their investments, while those who did take action, opted to:

• Confirm asset allocation aligns with investment risk (34%).
• Review asset allocation within retirement account to verify proper diversification (25%).
• Increase the amount invested into more aggressive investments (13%).
• Move money from typically less risky investments into aggressive investments (11%).
• Move money from investments experiencing a decline into less aggressive investments (7%).
• Move money into more liquid assets such as cash, bonds, or CDs (6%).

The research found this year that only about one-third of super savers reported themselves as reliant 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 those surveyed shared that they don’t invest in trendy investments or haven’t considered it yet.

“For many super savers, he said, “it’s more about consistent, steady investments they make in their savings that endure over time.”

The Principal Super Savers study is an online survey conducted by Principal from June 24, 2022, to July 5, 2022. Super saver respondents included 1,120 retirement plan participants ages 18–57 with savings behavior of:

• Contributing $17,550 or more to a retirement plan in 2021 (33%)
• Deferring 15% or higher to their retirement plan (36%)
• Contributing $17,550 or more and deferring 15% or higher to their retirement plan (31%)

 

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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