For the last three years we’ve been studying a group of Gen X and Gen Y “super savers” that are crushing retirement goals and busting stereotypes about young workers. And while they have a lot of great habits, many of them could still use the help of an advisor to round out and validate their plans.
For the third year in a row, we studied savers from generations X, Y, and Z that were contributing at least 90% of the federal maximum into their 401k plans (for 2019, that was $18,000 for most savers) or deferring 15%+ to their retirement plan. Some key high-level learnings we gleaned from this group of super savers included:
- They save more, earlier. More than 70% of them started saving for retirement in their 20s.
- They want to be financially independent. For many younger savers, this goal resonates more than the traditional concept of “retirement.”
- Their parents are their biggest influencers. Pay attention parents. Your kids are listening and watching. Eighty percent of super savers said their parents are good savers.
- Super savers are not miserable. They’re not giving up their streaming subscriptions and they still go out to eat. They are binging Mr. Robot on Prime Video and Seinfeld on Netflix just like the rest of us!
- It’s all about balance. The key for these savers is they’re making the tough choices required to balance present needs and wants with future needs and rewards.
The steps these super savers take to build their nest egg faster than most are not earth shattering. They tend to focus on the bigger ticket items when it comes to striking that balance. They drive older cars and travel less or shorter distances than they might otherwise desire. They buy modest homes and are more likely to Do it Yourself (DIY) when it comes to projects and repairs. These small sacrifices help them stretch their savings even further.
Despite making hard sacrifices to save, they do splurge on things like streaming subscriptions, travel, eating out, shopping, and entertainment. They are still indulging and enjoying life. The difference is that they’re applying moderation in specific places where it makes a big difference.
When it comes to learning about long-term savings, 80% of them indicated that they learned little to nothing about personal finance in school—even though 98% of them think they should before graduating from high school. The first place they go to learn about retirement is online, but very few of them use complex online planning tools or systems. Four in 10 (41%) super savers work with a professional advisor.
How can we get more people to save?
It was striking that these super savers are banking big bucks for retirement but still largely “DIYing” their finances. It’s encouraging to see more super savers work with advisors than the general population, but there’s still a lot of people out there that need help.
While not everyone can become a super saver overnight, there are simple steps we can take at the plan level to bring them closer. An additional 1% deferral in a 401k plan or a contribution to an IRA could pay off big down the road. For savers who have access to an auto-escalation feature in a 401k plan, they can pull the lever and start the automatic savings flowing. This enables them to effectively save more tomorrow, today!
There is no more powerful strategy to than to save more, earlier. As Generation Z begins to pour into the workforce, sharing these simple but powerful tips we are gleaning from super savers could make all the difference.
Jerry Patterson is senior vice president of retirement and income solutions with Principal Financial Group. The subject matter in this article is provided with the understanding that Principal is not rendering legal, accounting or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax or accounting obligations and requirements.