The last week of February is America Saves Week, and now more than ever, it’s vital to have a plan for saving money.
The events of the past year made clear the importance of having money set aside. The COVID-19 pandemic and the resulting shutdowns and layoffs threw a wrench in the finances of families across the country.
Despite the turmoil, surveys have shown that many Americans are actually saving more money and paying down debt during the pandemic. In an informal poll on PERA’s Facebook and Twitter pages, more than 200 people weighed in and nearly 60 percent of them said they, too, have been saving more.
Increasingly, PERA members know the value of participating in the voluntary PERAPlus 401(k) and 457 plans to boost their retirement savings.
In 2019, the average PERA benefit was $3,153 a month, or $37,836 a year. Reliable lifetime income is a financial cornerstone for many PERA members, but many also plan to have additional income in retirement. To do this, they participate in voluntary retirement savings plans. In 2019, more than 87,000 PERA members contributed to a PERAPlus 401(k) or 457 plan, up several hundred from the year before.
The nonprofit Consumer Federation of America organizes America Saves Week every year to encourage even more people to take up good money habits and start saving for the future. Each weekday has its own theme to get people thinking about different aspects of saving.
One of the easiest ways to save money is to do it automatically. The PERAPlus 401(k) and 457 retirement plans allow members to make automatic contributions every time they get paid. Those in the plans also have the option to contribute a percentage of each paycheck, rather than a simply flat dollar amount. This makes increasing retirement savings automatic, too, as the amount of savings increases any time pay increases.
Another option for automatic saving is rounding up debit card purchases and putting that extra change into a savings account. A growing number of banks and mobile banking apps offer this hands-off saving feature.
Save for the Unexpected
Many experts recommend having three to six months’ worth of living expenses stashed away, but that’s easier said than done. Starting small and aiming for an emergency fund of $500 can make a big difference, as research has shown that even before the pandemic, many Americans couldn’t afford an unexpected $500 expense. Setting aside about $1.37 a day (roughly $42 a month) will result in savings of $500 in one year’s time.
Save to Retire
Members of PERA are already on the path to saving for retirement, as workers and their employers both automatically contribute to the employee’s PERA account each month. PERA invests these funds on behalf of its members in the Defined Benefit (DB) plan in order to provide a monthly benefit that retirees cannot outlive. PERA members in the Defined Contribution (DC) plan have the flexibility to choose their investments to meet their retirement goals.
The voluntary PERAPlus 401(k) and 457 plans, available to those in both the DB and DC plans, offer even more flexibility with the option to set up additional retirement savings and invest that money to plan for a more secure future.
Save by Reducing Debt
Accrued debt like student loans and credit cards can be a big obstacle to saving more money. That’s why it’s important to make a plan to reduce debt wherever possible – a good rule of thumb is to focus on high-interest debt like credit cards first. This results in saving money on interest charges long-term.
Save as a Family
It’s never too early to learn about saving money! Parents should think about setting aside some time to talk to their children about money and the importance of saving. This could even be a great opportunity to set a young child up with a piggy bank, if they don’t already have one.
Have a helpful savings tip to share? Leave a comment below!
Defined benefitA mandatory retirement savings plan in which a participant’s future benefits are known or can be calculated, but contributions are subject to adjustments. Defined contributionA voluntary plan in which participants can save pre-tax income for retirement. Contributions are “defined” by the employee, but the future benefit is not guaranteed.