Young People Saved More for Retirement Because of the Pandemic
According to a new survey from Voya Financial, 72% of Voya retirement plan participants who made changes to their savings rate in the second quarter of 2021 upped their savings. These findings suggest that the economic woes of 2020 motivated people to focus more on saving.
And younger people are leading the way. Of those who altered their savings in April 2021, the vast majority of Gen Z (82%) and millennials (73%) boosted their savings rates. Though inspired by tremendous loss and economic upheaval, this more rigorous approach to retirement planning by saving is good news.
“As horrible as the pandemic has been for us all, it is refreshing to see the results of the survey that Americans are more disciplined when it comes to retirement savings and financial planning,” said Todd Bryant, partner and financial planner at Signature Wealth Advisors. “A lot of planning involves planning for the unknown [and] one of the greatest unknowns in our history is the Covid pandemic. As quickly as it came into our lives, our money can just as quickly leave our lives.”
As the pandemic rages on and economic uncertainty persists, will this trend of Gen Z and millennials building up their nest eggs continue? Alas, it already looks to be losing steam.
“The personal savings rate according to data from the U.S. Bureau of Economic Analysis jumped to 26.9% in March 2021 versus [13.1%] a year earlier in March 2020,” said Kenny Senour, certified financial planner with Millennial Wealth Management. “[But] we have already seen the savings rate drop to 9.4% as of June 2021 — which we would expect as businesses reopen and people feel more comfortable going out in public and spending their money.”
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Yet a drop off in savings isn’t necessarily a bad thing — provided future retirees are curious about and investing in retirement in other ways.
“In working with millennials, we have seen an uptick in questions about how to optimize their retirement savings and evaluating current life insurance needs,” Senour said. “In other words, the increased savings rate is just one side effect from the pandemic that we have observed based on a broader increase across the millennial and Gen Z generation’s interest in overall financial wellness.”
One aspect of overall financial well-being that millennials are showing more of an interest in since the pandemic is life insurance.
“A lot of millennial families with dependents have seriously evaluated their need for life insurance in a Covid world,” Senour said. “A study released by research firm LIMRA in March 2021 [found] that 45% of millennials were interested in purchasing life insurance as a result of the COVID-19 pandemic. This is a trend we have certainly seen in our practice working with millennials and younger clients with dependents.”
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Just as — if not more important — than saving money for retirement is investing it in retirement accounts and plans. The earlier one starts, the better.
“Even if they can only contribute modest amounts, participation in employer-sponsored retirement plans can help build wealth,” said Marguerita Cheng, certified financial planner at Annuity.org. “If they don’t have access to a plan because their employer doesn’t offer one, they can establish an IRA or Roth IRA.”
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Perhaps what’s most crucial is to be disciplined in one’s approach to retirement savings, no matter the economic climate.
“The most important thing is to start saving and be consistent,” Cheng said.
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