31% of People elevated their retirement plan contributions in 2020: This is why
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Between massive unemployment and a volatile market, one might expect many Americans to have paused, or at least cut, their pension contributions. It turns out, however, that this wasn’t the case for nearly a third of Americans. A TIAA survey of retirement benefit plan participants, conducted in late 2020, found that 31% of Americans actually increased their retirement savings in the wake of the coronavirus pandemic. Here’s why that is – and why you should also consider increasing your posts.
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Some Americans have increased their contributions out of habit
For some participants in retirement plans, it is a regular increase in contributions – regardless of external influences. Shelly-Ann Eweka, CFP, Senior Director at TIAA, recommends making a habit of increasing your contribution whenever you receive a raise.
“When you bet 10% and got a 10% raise, if you can, take it all, but realistically try to break it into thirds,” she said. “[Use] A third of your raise goes towards paying off debts, another third towards higher lifestyle expenses – because inflation increases costs – and then try to put a third into savings [and/or] Your pension plan contributions. “
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Some plan participants may also have increased their pension contributions after reviewing their annual cash flow. Since many Americans saved more during the pandemic, it could mean they had more leeway to increase their contributions. Or if they had debts to pay off and could do so with the extra money, this could also be a motivator to contribute more to retirement plans.
“When you are just finished paying off a debt, take some of that debt right away and start increasing your pension contributions,” advised Eweka.
Retirement income calculators also motivated Americans to contribute more
The story goes on
Of those who increased their contributions and said they were motivated to do so, 48% said they were influenced by a calculator or a retirement income forecast.
“Retirement income calculators show how much income you can expect to receive for your life,” said Eweka. “This pension calculator covers your social security, your pensions if you’re lucky enough to still have one, or if you can convert some of your fixed assets into guaranteed income or a fixed asset payout. Some calculators also run stress tests, which test forecasts based on market assumptions. “
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These calculators can be a useful tool in determining if your contributions will allow you to retire when you want and maintain your desired lifestyle. If they show something that is inconsistent with your goals, it may be an indication that you need to start contributing more.
“Let’s say you are now spending about $ 5,000 a month and it is assumed that when you retire you will have $ 3,000 a month – that’s a significant loophole,” Eweka said. “It’s a huge red flag. Once this void is identified, it is up to you to decide how to fill that void. I recommend working with a financial advisor so that you can plan how to fill that void. There is no magic. You’ll bridge the gap by working longer, saving more, and spending less – a combination of three. “
Habit and retirement calculators aside, other motivations for Americans to increase their retirement contributions in 2020 include information in their plan statement, information or advice they got from another source, information or advice they get from their employer or plan provider to have. a meeting with a financial advisor and group meetings or seminars for employees at work.
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Although 31% of Americans increased their pension contributions, 14% decreased theirs
Unsurprisingly, some Americans cut their pension contributions in 2020. Some did so due to financial difficulties created as a result of the pandemic. This could be a personal job loss or the job loss of a partner. For some of these Americans, “they had no choice,” Eweka said. “They had to cut it down because they needed the cash flow to keep the lights on.”
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Others reduced contributions in anticipation of future job losses.
“A lot of people were afraid, is my job the next?” Said Eweka. “When I look at their emergency money, how am I supposed to pay my bills when my job ends? So you’re saying I’m going to stop contributing so I can put more money into this cash account. “
If you’re one of those Americans who cut their pension contributions due to the lack of an emergency fund, Eweka has prioritized building that fund ASAP.
“Start small,” she said. “If you can, build up a paycheck amount. [The typical] The recommendation for an emergency fund is six months, and that’s daunting for many people – start with a paycheck. Go ahead and the next thing you know is what you will achieve in those six months. “
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Last updated: April 14, 2021
This article originally appeared on GOBankingRates.com: 31% of Americans Increased Their Retirement Plans in 2020: Here’s Why