The financial crisis that began five years ago triggered a recession and dramatic drop in stock and housing prices that hit Americans hard. The unemployment level reached its highest mark in nearly 30 years, foreclosure rates quadrupled, and many investors suffered significant setbacks to their savings plans. It’s no wonder that in a recent Fidelity survey more than 64% of respondents said they felt scared or confused at that time.
Five years later, however, one benefit may have emerged from the downturn: Many Americans have become more focused on their financial lives—more than 56% told Fidelity that instead of “scared or confused,” they now feel “confident and prepared.” “From the depths of the recession and volatile market conditions, many investors found resolve and started making very positive changes to their personal economy,” says Kathleen Murphy, president of Personal Investing at Fidelity. “Whether it’s increasing contribution rates to a 401(k) or IRA, adjusting asset allocation, or increasing the frequency of financial discussions with family, the silver lining of this recession was that it spurred investors to reassess and improve their finances.”
How did they do it? The short answer: They took control.
While our respondents were split between blaming the crisis on banks and lenders and blaming it on Americans getting overextended financially, 56% of respondents said they now believe that it’s solely their responsibility to prepare for retirement. And they have already begun to take action. About two-thirds told Fidelity they have become more knowledgeable about their finances, and about three-quarters are monitoring their investments more carefully.
How can you learn from them? Consider these steps to take control and help strengthen your personal economy.
Step 1 - Save more—and smarter—for retirement.
You can’t control the markets, but you can save more—and doing so can pay off. Among investors who went from feeling scared to prepared, 42% said they increased their contributions to their workplace savings plans—401(k)s, 403(b)s, 457s, health savings accounts (HSAs)—as well as to individual retirement accounts (IRAs).
Why is it so important to save in these accounts? The combination of tax-deferred investments and disciplined savings mean even small changes can have a big impact on your future lifestyle.
So, take advantage of your workplace savings plans. For most people, the top priority should be contributing enough to capture any company match. Not doing so could be leaving money on the table. Also, try to take full advantage of other tax-advantaged savings vehicles, like HSAs, IRAs, and annuities.
How much is enough? We think a good starting point is to have saved at least eight times your ending income by the time you retire, though your number can be significantly higher or lower, depending on your situation and some key choices you make. Among those choices are the age at which you plan to retire and the amount of your income you want to use in retirement.
(To be continued...)
Source: Fidelity Investments
The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
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