America Saves Week arrives with many Americans just trying to get by, signaling it’s time for a different attitude toward finances this year.
By Kara Corridan
Americans are reevaluating their approach to savings coming off a tumultuous year. A full quarter of American workers have reduced or exhausted their emergency savings because of the pandemic, according to the latest Pulse of the American Worker Survey: Road to Resiliency, new research from Prudential Financial. Nearly 60% reported that the pandemic has made them less financially secure.
“The pandemic has been a grim reminder that too many Americans are living too close to the edge,” says Yanela Frias, president, Prudential Retirement. “COVID-19 has highlighted the shortcomings of the current approach towards financial wellness and retirement readiness, and further strengthened our resolve to help prepare all of our clients and their participants.”
Prudential’s Retirement Counselors—who quickly switched last March from in-person group meetings with clients to virtual one-on-one sessions—have been at the forefront of difficult financial conversations throughout 2020. They’ve helped participants navigate painful requests ranging from changing beneficiaries after the death of a spouse to stopping contributions due to a furlough or job loss.
Americans are taking the lessons they’ve learned and looking at savings through a new lens. These are the themes that have emerged, as America Saves Week kicks off Feb. 22:
Reevaluate expenses. While it’s key to have emergency savings for a “what-if” scenario, 2020 was the ultimate what-if. Lily Lau, a Prudential Retirement Counselor in New Jersey, finds that people are now watching their spending more carefully and becoming more stringent about budgeting. “They understand that it makes sense to see where every dollar is going, and to learn more about topics like the tax benefits of saving,” she says.
Reconsider contributions. Danny Valenzuela, a Prudential Retirement Counselor in California, is seeing people boost contribution amounts to their plans—sometimes by a percentage point or two, sometimes by far more, especially if they’re closer to retirement. “These people are laser focused, and they’re realizing they need to do much more than what they were doing before the pandemic,” says Valenzuela. “So they’re making dramatic changes and seeing that the sacrifice is worth it for the peace of mind in the long run.”
Zoom out. Many of Lau’s participants avoided making any rash decisions when the markets were at their most unsteady. “It was such an emotional time, and I understand how frightening it is to see volatility with your assets,” explains Lau. “But as hard and as counterintuitive as it was, I’d urge individuals to look at the big picture based on their circumstances and try to stay the course.” And among those who did, she reports, many were amazed at how much their accounts bounced back and even grew.
Make your money work for you. In part because they need to stretch their dollars further, and in part because they finally have more time at home to do the research, people are paying closer attention to their accounts. These may be a somewhat forgotten IRA they’ve had for years or funds with contributions from previous employers. “People are asking, ‘What are these accounts doing for me? Is my money earning what it should?’” observes Lau. As a result, they’re consolidating accounts, rolling them over or opening new ones.
Give yourself a break. “People have had to make really dramatic changes,” Valenzuela points out. “They’ve experienced true hardships, and in some cases terrible losses.” He encourages those who haven’t been able to meet their financial goals to pat themselves on the back for the small wins like cutting spending, saving regardless of the amount, or even staying in a retirement plan.
Coming up on nearly a full year since the start of the pandemic, Retirement Counselors are seeing a light ahead.
“2020 required a lot of short-term planning instead of focusing on long-term goals, but we’re slowly returning to those bigger-picture plans,” says Valenzuela. Lau agrees: “I see people are starting to feel relief now that there’s a vaccine. They’re realizing, ‘We’re going to get through this. Life is going to continue and I need to be proactive about my future.’”
This is being provided for informational and educational purposes. Since individual circumstances vary, contact a financial professional to address your personal circumstances.