How to Become a Retirement Super Saver

When it comes to retirement, many Americans remain financially unprepared. However, there is one group that may be winning the retirement savings game. A distinct set of Millennial super savers are making serious financial sacrifices to pad their retirement accounts. The question is, is it worth it?

Key Takeaways

  • Younger generations, notably Generation Z and millennials, are saving more for retirement versus other age groups.
  • Individuals can still save for retirement if they don't have a 401(k).
  • Individual retirement accounts (IRAs) are the key alternative, although the annual contribution limits are lower than 401(k) plans.

How Some Millennials Are Saving

A recent survey from Principal Financial Group looked closely at the financial habits of millennial savers who are saving 90% or more of the annual contribution limit in their 401(k) plans or are putting at least 15% of their income toward retirement. A common thread among these super savers is that retirement is their top financial priority.

In terms of how much they’re saving, as of 2021, 33% of these super savers are stashing $17,550 or more in their 401(k) plans and 31% are putting more than 15% of their income toward retirement savings.

To make those contributions, super savers are making trade-offs in other areas. According to Principal Financial Group, during the COVID-19 pandemic, 44% of super savers drove older cars so they could funnel more money into their retirement accounts. Thirty-eight percent said they were not traveling as much as they'd like, and 36% were doing do-it-yourself projects in their homes instead of hiring professionals.

What Are Those Sacrifices Worth?

Determining whether it makes sense to defer buying a home, skip vacations or drive an older car is ultimately a numbers game. Assume that a 30-year-old female saver is contributing $16,200 to her 401(k) annually, with a 100% employer match of the first 6% saved. If that employee earns a 6% annual rate of return, she could retire at age 65 with more than $2.4 million in savings. If she contributes $18,500, that figure will grow to more than $2.6 million.

Using the median household income of $79,900 and a 6.8% contribution rate, the same 30-year-old would end up with around $1.1 million in savings instead, assuming a 6% annual return. That’s still a decent amount of money, but it’s a far cry from what the super savers are set to accumulate.

In 2022 and 2023, investors can contribute even more since the Internal Revenue Service (IRS) increased the contribution limits for 401(k)s. For 2022, the maximum contribution limit for a 401(k)—as an employee—is $20,500, and $22,500 for 2023.

How can you be a super saver if you’re not able to fully max out your plan, or you don’t have access to a 401(k) at work?

If you do have a 401(k), you can start by reevaluating your current contribution amount. At the very least, you should be contributing enough to get the company match. If you’re not, increasing your deferrals should be a priority, so you’re not missing out on free money.

From there, evaluate your budget to see if you can reduce or eliminate some of your expenses. When you can cut things out of your budget, you lower the amount of money you need to live on. That’s money that you could use to increase your 401(k) contributions. Diverting your annual raise to your 401(k) is another option if you’ve already trimmed your budget as much as possible.

If your plan has an auto-escalation feature, that’s another way to build your savings relatively painlessly. An analysis from Fidelity Investments saw 401(k) balances reach an all-time high of $112,300. Among the 33% of workers who increased their savings rate over the previous 12 months, 60% of those did so using auto-escalation.

Saving in an individual retirement account (IRA) is another option if you don’t have a 401(k). The annual contribution limit for IRAs is lower than a 401(k), at $6,000 for 2022 and $6,500 for 2023. However, the money can still add up over time if you’re saving the maximum amount.

Remember, a traditional IRA offers a deduction on contributions, while a Roth IRA allows you to make tax-free withdrawals after you've retired. If you expect to be earning more later in life, tax-free withdrawals could yield more tax benefits than a deduction on contributions.

The Bottom Line

Being a super saver may not be realistic for everyone. It’s possible, however, to build a sound retirement strategy even when you’re not maxing out an employer’s retirement plan. Saving as much as your budget will allow, getting an early start, and tucking money away consistently are all important steps for reaching your retirement goals.

Article Sources
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  1. Principal. "Principal® Survey Finds Retirement “Super Savers” Undeterred by Market Volatility and Inflation, Prioritizing Lofty Savings Goals."

  2. Principal Financial Group. "Principal® Study: Top Retirement Savers Sock Away More During Pandemic."

  3. Internal Revenue Service. “401(k) Limit Increases to $22,500 for 2023, IRA Limit Rises to $6,500.”

  4. Fidelity Investments. "Fidelity Q4 2019 Retirement Analysis," Page 1-2.

  5. Internal Revenue Service. "Traditional and Roth IRAs."

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