Middle-income households exceeding retirement savings expectations

Middle-income households are generally applying strong retirement savings habits and behaviors, even as they balance competing financial priorities, according to a survey from Principal Financial Group.

According to the survey, Principal Real Life Retirement Journeys, 77% of middle-income households (those with between $50,000 and $99,999) are saving for retirement at an average rate of 7.8% of their income before receiving additional contributions from their employers. In addition, 40% of the middle-income household respondents anticipate that their retirement will be better than the one they first envisioned.

Principal reviewed the survey findings in tandem with personal finance expert Jean Chatzky, CEO and founder of HerMoney, who shared: “As vital as our family and friends are to helping shape our values, beliefs, and opinions, there are often limitations on both what they know and what they can do to support our financial goals. Individuals who use resources offered through their employer’s plan – in some cases at no additional cost – or who get help from a financial professional typically express higher levels of confidence in their ability to make decisions and reach their goals. It’s important for people to understand their access to help does not depend on their age or how much money they have.”

Why are middle-income households exceeding their retirement savings expectations even when other groups do not appear to be saving enough for retirement?

“Access to a workplace retirement savings plan is the key,” explained Teresa Hassara, senior vice president of workplace savings and retirement solutions at Principal. “Of the 1,000 Americans we surveyed, 88% are saving for retirement, with 89% of those individuals utilizing their employer’s retirement plan. This is double the number of people using IRAs (45%) and is three times more than those with a pension (27%).”

When looking across income bands, there are multiple areas in which middle-income households are managing their finances and expectations similarly to households with higher income, Hassara added. Compared to their first ideas about what retirement could look like, 40% of middle-income households believe their actual retirement will be better, which is only 2% lower than households with an annual income between $100,000 and $199,999, Hassara said.

Reliance on Social Security reveals signs of optimism, too, she added. Slightly more than 1-in-4 middle-income households (27%) expect to rely exclusively or quite a bit on Social Security versus 28% of individuals with a household income of between $100,000 and $199,999.

Additionally, Hassara pointed out, the survey results found that people who rate their employer as the most helpful source of information are less likely to say that saving for retirement was a financial burden when they started. “This is important because people across all income bands share the similar challenge of making financial sacrifices to save for retirement – 59% of middle-income households versus 54% for households with an annual income of at least $100,000 – and non-savers are half as confident in their ability to manage finances,” she said.

Retirement savings habits

According to the survey results, middle-income households are making positive and meaningful decisions to save for retirement even as they balance competing financial priorities, Hassara pointed out. First, she said, a high percentage, 77%, are currently saving for retirement. “Their average savings rate is 7.8% of their annual income, putting many within range of a recommended minimum savings rate of 15% when you include the typical employer match, which was an average of 5.9% for the middle-income households participating in the survey.

Another positive behavior that the survey revealed is how early middle-income households first started saving for retirement, Hassara said. “On average, they began to save at 26.2 years old. This is important because time is the biggest advantage individuals have when it comes to saving for retirement,” she said.

Individually, each of these survey findings is encouraging but, in combination, they tell a powerful story of how the U.S. retirement system is working well to create positive retirement outcomes, according to Hassara. The combination of access, education, financial wellness tools, and advice services, has created meaningful changes in behavior that is delivering progress.

But households are still withdrawing funds

While the survey results illustrate positive momentum for retirement savings, it also found that nearly one-third of middle-income households have made a withdrawal from their retirement accounts to adjust for changes in their personal financial situations.
Of those middle-income households who reported taking a withdrawal, the four most common reasons were to:

1. Address large purchases that were not optional such as urgent home or car repairs (38%).
2. Cover lost income due to the loss of their job or their spouse’s/partner’s job (30%).
3. Repay medical debt (18%).
4. Pay for expenses related to an adult child or parent (18%).

Making things better

So, what can advisors do to help middle-income consumers further exceed their retirement-savings goals? When indicating how helpful different sources of information are to them, using financial professionals is associated with the highest levels of confidence, Hassara noted. Seven out of 10 individuals said financial professionals had all the information needed to help them start saving for retirement while 8-in-10 (82%) said that financial professionals provided confidence they were making the right decisions. “Those are strong marks of trust that we believe can extend into other areas of support,” Hassara said. These include:

• Ongoing advice at scale: Beginning to save for retirement is a big step, but it is only the first step in creating a nest egg for retirement, Hassara said. Life will happen and helping people balance a variety of competing financial priorities such as student loan debt, unexpected medical expenses, or saving for a big purchase can help them stay on a positive path forward. “With more individuals expecting and seeking advice to help them manage their unique financial situations, financial professionals have an immense opportunity to harness the confidence individuals gain from working with them in more ways,” she added.
• Personalize the experience: Retirement is not a one-size-fits-all conversation, Hassara said. “The more we can personalize and tailor experiences to meet the unique needs of individuals, the better we believe their outcomes could be. This ranges from education and communication all the way to investment strategies and planning for income in retirement.”The survey had responses from 1,000 employees between the ages of 18 and 64, with pre-tax household incomes of $50,000 or more, who are currently working or who have previously worked for an employer who offers or offered retirement savings benefits. It was conducted online between August 23, 2024, and September 1, 2024.

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