Amid Inflation, Here’s How Some Americans Are Maxing Out Their 401(K) Plans

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Andrew Perri, President & Founder

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The idea of maxing out a 401(k) or making double-digit percentage contributions to a retirement plan may seem out of reach, but 60% of super savers start these savings habits before reaching their 30s, a new survey found. 


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They’re also still planning to accomplish other financial goals, such as going on vacation and paying off debt, according to Principal Financial Group’s latest report on super savers. Saving for retirement just happens to be top of mind for many of these plan participants. 

Super savers include workers who are saving 90-100% of the maximum limit for a defined contribution plan, or who are deferring at least 15% of their salary to a retirement account, according to Principal Financial’s survey of 1,120 retirement plan participants between the ages of 18 and 57 years old. 

These results come as the latest Consumer Price Index report shows a slightly lower rate of 8.3% through August, compared to 8.5% in July. Although the price of gasoline has declined, contributing to the inflation rate decline, the prices for other key expenses – such as groceries, rent and healthcare – have continued to rise. In response to the inflation news on Tuesday, U.S. stocks opened much lower, with the Dow dropping 500 points.

The savers reflected in the survey stayed the course, even during the pandemic, market volatility and higher rates of inflation, said Sri Reddy, senior vice president of retirement and income solutions at Principal. “All of these super savers have been resilient,” he said. “They’re viewing this as a buying opportunity to save for the long-term.” 

More than half of survey participants across all ages said they have saved more during the last 24 months, while 41% said they are saving the same as before and only 4% are saving less. This group of retirement-focused individuals are mostly using employer-sponsored retirement plans, followed by traditional savings accounts and then Roth IRAs. Their greatest motivation for saving so much: wanting to feel financially secure, the survey found. 

But saving so much of one’s salary isn’t always feasible, despite the best of intentions. Many Americans juggle multiple financial responsibilities, such as raising a family and childcare, paying down student and credit-card debts, and balancing contributions towards other goals, like buying a home or starting a business. 

“You don’t need to be a super saver to exhibit the right savings behavior,” Reddy said. “If you can’t max out your 401(k), that’s not the end of the world.” 

Aside from contributions to employer-sponsored plans, look at interest rates – for those with high rates tacked on to their credit-card debt, prioritize paying those down first, and anyone with a savings account may want to visit their bank to ensure they’re benefitting from potentially higher rates these days. Like super savers, try to keep focus on the long-term, Reddy said. 

The last few months have been particularly turbulent, and at times concerning, what with increasing interest rates and inflation. As during all times of volatility, retirement savers are encouraged to stay put with their investments and not make any drastic changes. 

A little less than half of Principal’s super savers said they made no changes to their investment strategies, but more than a third did because of the past year’s market volatility—for 13%, that shift was increasing the amount invested in aggressive investments, and for 11%, it was moving money from less risky investments into aggressive investments. Another 7% said they moved money from investments experiencing a decline into more conservative investments to avoid losses and 6% said they moved money into more liquid assets, such as cash and certificates of deposit. 

Many people said they planned to spend 35 years or more in retirement, and 21% of respondents said their retirement savings goal is between $2 million and $3 million. About a third said their goal is less than that, while around three in 10 said they want to save more; 16% said they don’t have a retirement savings goal. 

Principal’s super savers said in order to achieve these savings habits, they drove older vehicles, traveled less than they’d like, owned a “modest home” and chose do-it-yourself projects instead of hiring someone else. Almost a third said their sacrifices for saving more included high levels of work-related stress, and others mentioned less of a social life or using secondhand goods instead of new purchases. Their splurges included subscription entertainment services and dining out more than once or twice a week. 

“All you’re doing is paying yourself first,” Reddy said. “Their savings habits started early in life – they recognize things you buy give you some immediate gratification but it’s not long-lasting. Peace of mind and security, all those things have a longer tail.”

This article originally appeared on MarketWatch.

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Andrew Perri profile photo

Andrew Perri, President & Founder

aperri@pinnaclewealthonline.com
Pinnacle Wealth Management
Andrew : 810-220-6322