You'd think rising gas and grocery prices might cause workers to skimp on their 401(k) contributions. But that's only half correct. The faltering economy has some Americans saving less and others tucking away more for retirement. At least that's the confounding result of a new survey.
While it's unsurprising that 15 percent of people in IRAs and workplace retirement plans have lowered their contributions and 73 percent kept theirs the same, a surprising 16 percent say they have actually increased the amount they're saving as a result of the current economic downturn, found a Bankrate.com survey of 1,004 adults done by GfK Roper Public Affairs & Media.
And it's not just wealthy investors who are contributing more. Some 45 percent of the people who increased their contributions make between $20,000 and $40,000 annually, according to Sheyna Steiner, a Bankrate reporter who did the data analysis. "People making less might feel a little bit more nervous about the future," she says.
Financial services companies have been noticing this counterintuitive trend, too. Some 7.1 percent of people in Charles Schwab-administered plans lowered their contribution rate in the first quarter of 2008, compared with 5.8 percent in 2007. But 5.4 percent of Schwab customers have boosted their contributions this year, although that's down a little from last year's 7 percent increase.
"The trend has been we see more people reducing their savings rate than they have in recent years," says Dean Kohmann, Schwab's vice president of 401(k) plan services.
But Kohmann attributes some participants' increased contributions to plan sponsors automatically enrolling their participants and an uptick in the number of firms offering investment advice to employees. "People who take the time and get advice double their savings rate, and their rates of return are about one and a half percent higher versus people who pick investments on their own," Kohmann says. In Schwab plans, the difference was even greater: Employees who sought advice averaged a 10.2 percent annual return, while workers who chose their own allocations earned 7.8 percent.