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Save Rather than Spend Social Security Payroll Tax Cut

In 2011, most American workers will get a 2 percent boost to their paycheck thanks to legislation signed into law today by President Obama. The Tax Extension Bill provides a Social Security "tax holiday" by decreasing the current payroll tax rate from 6.2 percent¹ to 4.2 percent for one year.

The Principal Financial Group says American workers who save rather than spend that extra 2 percent could potentially make a significant difference in their retirement nest eggs over time. For example, a 30-year-old earning $50,000 a year who defers an extra 2 percent into his or her 401(k) account over the next year would boost the weekly 401(k) contribution by a little more than $19. That amount could potentially grow to more than $16,600² by retirement at age 66.

"For Americans who can afford it, why not just put part or all of that 2 percent tax cut into your 401(k) or 403(b) account? It's money you aren't used to spending anyway," said Greg Burrows, senior vice president, retirement an investor services at The Principal. "It may be just the amount to get closer to saving between 11 percent and 15 percent of pay³. We believe most retirement plan participants should be saving in that range–including employer match– over the course of a career to have adequate income at retirement."

Workers who are 50 years and older and already maxing out on their retirement plan contributions, could use the 2 percent as part of their catch-up contribution.

"When Americans on average are saving about half of what they need for a secure retirement, any additional amount is a good thing," said Burrows.

For more news and insights from The Principal, connect with us on Twitter at: http://twitter.com/ThePrincipal.

About the Principal Financial Group

The Principal Financial Group (The Principal )⁴ is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $305.7 billion in assets under management⁵ and serves some 18.9 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.

¹ Of the first $106,800 in earned income

² Assumes an 8 percent annual investment return. The assumed rate of return is hypothetical and do not guarantee any future returns nor represent the returns of any particular investment.

³ In a recent survey, the median response among financial professionals indicated that individuals need to save approximately 15% of their pay, including employer contributions (if applicable), to have enough income during retirement, assuming they begin saving for retirement early in their career. America Rebuilds Research with Financial Advisors, April 2010, conducted by Harris Interactive on behalf of the Principal Financial Group. When looking at all responses in the survey, the median is the middle of the responses given

⁴ "The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.

⁵ As of Sept. 30, 2010.

Principal Financial Group
Jaime Naig, 515-247-0798
naig.jaime@principal.com
or
Terri Hale, 515-283-8858
hale.terri@principal.com