- The COVID-19 pandemic forced many to re-think their savings, including retirement savings.
- Almost half of Americans plan to save more in general after the pandemic.
- 36% of Americans plan to increase their 401(k) contributions, and 35% plan to invest more overall.
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Americans say they’re changing the way they manage money because of the COVID-19 pandemic, including rethinking retirement savings.
A recent Schwab survey asked 1,000 Americans aged 25 to 70 how they expect their spending, saving, and finances to change after the COVID-19 pandemic. About half of survey respondents (48%) said they intended to save more overall.
The survey highlighted three ways Americans’ retirement savings habits are changing for the better because of COVID-19.
1. More than a third of people plan to increase their 401(k) contributions post-pandemic
About 36% of Americans plan to increase the percentage of their salary that goes to their 401(k) each month after the pandemic, the survey found. That means more overall savings, and potentially more free money in matches.
401(k) accounts are only available through an employer, but if offered, they’re valuable tools for saving. These accounts automatically deduct a set percentage from your paycheck, and put it aside to grow over time.
These accounts can also bring free money in the form of an employer match, and more of it the more you contribute. Employer matches offer free money towards your retirement fund when you contribute, up to a percentage of your salary. If you’re not yet getting your employer’s full match, increasing your contribution percentage could increase the match you earn each month, and bulk up your savings quicker.
2. More than a third of people are planning to increase their investments outside of their 401(k)s
For years, financial planners have been repeating a simple truth about retirement savings: You’ll need more than one account to retire comfortably. Post-pandemic, people are taking that advice.
Schwab’s data found that 35% of Americans are looking to invest more outside of their 401(k)s after the pandemic. Some of the best places to invest are retirement accounts, like IRAs.
These accounts come with tax advantages not available through individual taxable investment accounts. They’re available outside of an employer, and almost anyone can open one. To open an IRA, decide which type of account you’d like to use (generally either a Roth IRA or a traditional IRA, depending on your income and needs) and then choose a brokerage firm. Oftentimes, these accounts can be opened online.
Saving and investing in retirement accounts outside of 401(k)s can help you save more for retirement, while also taking advantage of tax breaks.
3. More than 30% plan to pay off debt, and that’s great for later on
According to the data, about 34% of respondents are planning to pay off debt after the pandemic. For anyone who wants to retire, that’s a great first step.
Being debt-free in retirement is a tactic retirees swear by — not only does it make money stretch further, but it also takes away one more responsibility while living on a fixed income later.
To pay off debt quickly, start by making a list of everything you owe, asking the lender for a lower interest rate, and making more than the minimum payment. Consolidating credit card or other debts might also help to lower the interest rate.
These steps will not only make it easier to pay off debt, but also make for an easier retirement later.