Secrets of young super savers

Young super savers do things a little differently from other savers. Here are some of their secrets.

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Keys takeaways

  • It's smart to start saving right now and try to increase the amount you're able to put away over time.
  • Aim to save at least 15% toward retirement—this includes any match to a 401(k) or 403(b) from an employer.

Think you're saving enough for retirement? Some young people might be out-saving you. Nearly 1 in 5 workers born from 1981 to 1997, aka millennials, saves more than 15% of their pre-tax income for retirement, according to a 2016 analysis of 14.5 million 401(k) plan participants in plans managed by Fidelity.1 That 15% includes any potential employer match.

Call them the super savers. Their savings accomplishments are notable for 2 reasons: Saving 15% of income annually from age 25 on, helps to put them on track to maintain their current lifestyle in retirement, and 15% is more than most people their age—or even older—manage to save for retirement.

Just 27% of Generation X, ages 37 to 52, saves more than 15% of income in their workplace retirement account, and only 37% of baby boomers, ages 52 to 71, saves that much. Want to be a super saver? Here’s how.

1. Get involved with your savings

If your company offers a 401(k), 403(b), or other retirement savings plan, begin contributing as soon as you can—particularly if your employer offers a match on part of your contribution. Taking steps to start saving is a great beginning, no matter how much or how little you’re able to save at first. That's because starting early can make a big difference in the long run.

Read Viewpoints on Quick-start guide to your 401(k)

2. Sign up to increase 401(k) contributions automatically

Many employers offer to increase your contribution automatically each year. Once you sign up to boost your contribution, your employer will increase the amount taken out of your paycheck by the amount you specify.

Of course, you should always review your 401(k) regularly and check to ensure that you’re saving as much as you can. But with this feature, your employer will increase your 401(k) contribution by the amount you choose, usually on a yearly basis. The choice is typically presented as a percentage of your income or as a dollar amount.

You don't have to increase your contributions dramatically—saving just a little bit more each year can add up over time.

Read Viewpoints on Just 1% more can make a big difference

Use our interactive See how a small change can make a BIG DIFFERENCE

3. Aim to save at least 15% every year

Saving 15% of your pretax salary may seem like a lot. But, if you have a 401(k) or other workplace retirement account with an employer match or profit sharing, that contribution from your employer counts toward your annual savings rate. To get to 15%, or to save even more, consider increasing your retirement savings with every raise.

Consider following our 50/15/5 rule of thumb to keep your spending and saving on track. Aim to spend no more than 50% of your take-home pay on essential expenses, including housing, utilities, food, transportation, and debt payments. Put 15% of your income, including employer contributions, toward retirement savings. Then save 5% of your take-home pay for short-term emergency expenses, such as unexpected car repairs or replacing an appliance. Work toward saving up at least enough money to cover 3 to 6 months' worth of your essential expenses.

Read Viewpoints on 50/15/5: a saving and spending rule of thumb and How much should I save each year?

4. Learn how to invest, at least a little

Just putting your savings into cash may not be enough to help you reach your goals. Investing can help your money grow and can help it to compound more quickly over time. Compounding is what happens when your investment earns a return, and then the gains on your initial investment begin to earn returns of their own.

You probably already know that investing is important, but figuring out how to actually do it can be challenging. It doesn’t have to be so complicated though.

Consider building a mix of investments based on easy-to-understand principles of investing known as asset allocation and diversification. Consider using mutual funds or exchange-traded funds (ETFs) to put your plan into motion. Mutual funds and ETFs differ in terms of the risks and costs associated with each. You can use actively managed funds or index funds—or combine them, by including both in your portfolio.

If you don’t want to pick individual investments, there are options for investors who want a little more help. If that sounds like you, and your plan offers them, consider a target date fund, where investment professionals set the investment mix based on a specific retirement age. Your workplace plan may also offer managed accounts which take into consideration things like your financial situation and your tolerance for the market’s ups and downs.

Learn about asset allocation and diversification.

Read Viewpoints on The guide to diversification

5. Save in tax-advantaged accounts

Maybe you don't have a 401(k) or 403(b). You still have options:

Consider saving in an IRA. IRAs allow your retirement savings to grow tax deferred or tax free, depending on your tax situation and the type of account you choose. Assuming you met the income-eligibility requirements, a traditional IRA would give you a tax deduction when you file taxes for the year in which the contribution was made—and then you only pay taxes when you take the money out in retirement. You’ll be required to begin taking withdrawals at age 70½. Or look at the Roth IRA, which may give you a little more flexibility. There's no immediate tax deduction, but withdrawals after age 59½ are tax free, and you're never required to take the money out of the account.

If you’re self-employed, consider saving in tax-advantaged accounts designed for small business owners and freelancers.

Read Viewpoints on No 401(k)? How to save for retirement

Consider a health savings account. If your employer offers a high-deductible health plan, you may have access to a health savings account (HSA) option—or if you have purchased a high-deductible health plan on your own, consider an HSA. Here's the gist: All withdrawals are tax free at the federal level when used for qualified medical expenses.2

Read Viewpoints on 3 healthy habits for a health savings account

6. Stick to it

If you consistently feel as though you just don't have any money to save, or aren’t saving as much as you would like, take a close look at expenses. There may be some areas where you could cut your spending in order to increase savings and pay off debt, if that's an issue for you. Sometimes short-term spending sacrifices are worth it if your finances will come out ahead in the long run.

Finally, be confident. You have time on your side. If you keep saving and investing, you’ll be on track to live the life you want in retirement.

Next steps to consider

See how we can help you grow and protect what matters most.

Know how to take advantage of the potential of a Roth IRA.

Learn more about wealth planning strategies and related topics.

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