More Americans, especially younger people, are saving for retirement, and they’re socking away more money as well, according to a new Bankrate survey.
As much as 21 percent of people polled are saving more for retirement than last year, a new record-high percentage in Bankrate’s Financial Security Index. On the flipside, fewer people are choosing not to save anything for retirement. Just 5 percent didn’t contribute to retirement savings this year, a new low for the survey.
“Both readings are indicative of an improving economy, where people are earning more and saving more,” says Greg McBride, CFA, Bankrate’s chief financial analyst.
The specific question regarding retirement savings has been surveyed by Bankrate once a year for 5 of the past 6 years.
Lea Wenban is one of those who is saving more. The 45-year-old Palm Beach Gardens, Florida, resident admits she should have started saving when she was younger.
“I will save even more in the near future, and that is a mixture of being financially able to do so and being more savvy, more aware,” she says.
The results of Bankrate’s Financial Security Index for August mirror government economic benchmarks that show the U.S. continues to baby-step out of recession, and that has helped to increase retirement savings.
The FSI reached its second-highest level of the year at 104.5 (see chart below). A reading above 100 shows Americans have an improving sense of financial well-being.’
Americans’ financial security surges
Bankrate’s Financial Security Index has popped up to its second highest level in 2016.
Bankrate’s Financial Security Index is compiled using 5 monthly survey questions that track Americans’ feelings about their job security, savings, debt, net worth and overall financial situation. A reading above 100 indicates improvement in financial security, while a reading below 100 reflects weaker financial security.
“Household balance sheets are stronger due to lower debt burdens, record low household debt service ratios and a record high level of job openings (5.6 million),” says Steve Rick, a senior economist with the Credit Union National Association. “The last time the economy was this strong was back in 2007.”
Companies help employees to save
The Bankrate survey results are also evidence of a changing retirement savings environment.
“The ongoing disappearance of traditional pension plans, and the precarious financial position of many of the remaining ones, puts the onus on individuals to save more,” says Alan MacEachin, corporate economist with Navy Federal Credit Union.
Adam Millsap, a research fellow with the Mercatus Center at George Mason University, says automatic enrollment in 401(k)s also has grown in popularity, boosting savings.
“Auto enrollment has been shown to increase the proportion of people who save,” Millsap says.
In addition, some employers are expanding their employer 401(k) match, according to Paychex, the payroll and benefits management company. That likely will induce people to save more for retirement, Millsap says.
Johnny Dilan, 35, of West Palm Beach, Florida, says he started saving at 29, deducting $150 per paycheck for retirement savings. As his pay increased after the recession, he boosted his contribution.
“This year, my 401(k) has a 6 percent match, and I max out my year contributions to my Roth IRA at tax time,” he says.
Younger generations are saving more
Perhaps most surprising in Bankrate’s survey was which age groups are leading the way in saving more now than last year for their retirement. Generation Xers (ages 36-51) led the pack at 26 percent, followed by younger millennials (ages 18-25) at 22 percent.
“Younger generations are likely saving more because they’re near the beginning of their life cycle and need to save more to reach their retirement objectives,” says Sam Rines, senior economist at Avalon Advisors LLC.
“The older generations have already done the majority of the saving they will do, and may see little point in putting additional dollars away at such low return levels,” he says.