Throughout the COVID-19 pandemic, the federal government provided a total of $931 billion directly to individuals in the form of stimulus checks, according to the Government Accountability Office. These stimulus payments were issued for the purpose of mitigating economic challenges resulting from the pandemic and business closures.
The funds were used for a wide range of purposes, but a relatively low proportion of people chose to put them toward retirement. GOBankingRates conducted a survey of more than 1,000 people who got stimulus checks in the past two years to find out how much of those funds they saved for retirement. The majority of respondents, 61.72%, answered that they did not put any of their stimulus money toward retirement, while 12.15% said they put less than half of it away. Less than 9% said they invested all of their additional money in retirement, and only 5.69% said they allocated more than half of the funds for that purpose.
In retrospect, it may have been a prudent decision to save those funds for their retirement years. GOBankingRates consulted experts across the country to understand why most Americans might have made a mistake by not putting the extra funds into their retirement savings.
The power of compound interest
Carlos Eduardo, founder and lead author of Scorebeyond, who chose to put his stimulus check toward his retirement fund, explained, “Based on my observations and conversations with colleagues in business, I noticed that some people were using their stimulus checks on impulse purchases such as consumer goods, vacations or non-essential spending.”
He added: “This choice can have negative long-term consequences, as not investing additional money in retirement means missing out on the power of compound interest. Individuals can take advantage of the exponential growth of their savings over time by wisely investing those funds in retirement accounts, such as a 401(k) or IRA. This is especially critical for entrepreneurs, who often experience irregular income and need to ensure their financial security beyond their working years.”
Consistent small contributions to retirement
Eduardo, a seasoned entrepreneur, expressed, “In my business career, I have learned that making regular, modest contributions to retirement accounts can lead to significant wealth accumulation. Although stimulus checks may seem relatively modest, channeling them into retirement can significantly strengthen long-term financial resilience.”
He added, “To those who may have overlooked this opportunity, I strongly encourage them to consider the long-term benefits of redirecting any additional funds toward retirement savings. This not only means ensuring a comfortable retirement, but also tapping into the potential of your money to work to your benefit over time. As an entrepreneur, I know that making strategic financial decisions can be the key to a successful and worry-free future.”
Fostering future growth
Michael Ryan, financial expert, retired financial planner and founder of Michael Ryan Money, noted, “Most people spent stimulus checks on immediate needs, such as bills, debt and groceries. Financial instability encouraged a short-term focus. When the stimulus checks came along, for many they represented a lifeline…. Those immediate needs came to the forefront, and understandably so. Financial instability tends to monopolize our attention.”
He continued, “Very few chose to invest in long-term goals, such as retirement. The benefits of compound interest take time to accrue. Planning for retirement is like planting a tree. The stimulus checks provided fertile soil, but most missed the opportunity to plant those seeds. Compound interest, like growing a mighty oak tree, demands time and patience. Not saving for retirement security was a mistake. Those stimulus funds could have fostered future growth.”
Build a solid financial cushion
“When you put money into a retirement account, you give it more time to grow,” explained Lynn Toomey, founder of Her Retirement. “This way, even a small amount can become a substantial and comfortable cushion in the future. It’s like planting a financial tree that will bear fruit when you need it most.”
He added: “Retirement accounts often offer attorney benefits. You can reduce your taxable income today and allow that money to grow tax-deferred until you retire. It’s like having your cake and eating it too.” Toomey also emphasized, “Remember, retirement is like a long weekend, hopefully. You want to make sure you have enough funds to enjoy those golden years. Setting aside some of that stimulus money is a gift to your future self.”
“It’s like building a financial safety net,” he continued. “Life can present unexpected challenges, and having savings in your retirement account gives you peace of mind, knowing that you’re prepared to meet any eventuality. If you wait too long to start saving for retirement, you’ll have to do it in fits and starts, and that’s not pleasant. Starting early, even with modest contributions, makes the process easier and reduces stress.”