40% of workers are behind on their retirement savings. How to catch up

Molly Richardson, 35, contributes regularly to her 401(k) plan, but the structural engineer says she’s not too worried about retirement yet.

“I always thought I could wait until I was 50 to figure this out,” she said.

Like many other working adults, Richardson says she has more pressing expenses at the moment, like the mortgage on her Jacksonville, Fla., home, car loans and student debt.

Yet the married mother of one admits she has no clear savings goal once these other financial obstacles are overcome.

“It’s hard to estimate how much we’ll actually need,” she said. “There are question marks.”

In fact, 4 in 10 American workers (or 40%) are behind on their retirement planning and savings, largely because of debt, insufficient income or getting a late start, according to a new CNBC survey of more than 6,600 American adults in early August.

Older generations, closer to retirement age, are more likely to regret not saving early enough for retirement, the survey found: 37% of baby boomers ages 60 to 78 said they felt behind, compared with 26% of Gen Xers, 13% of millennials and just 5% of Gen Zers over 18.

“There are so many people, young, mid-career and mid-career, who are not saving enough for a healthy, secure retirement,” said Jacqueline Reeves, director of retirement planning services at Bryn Mawr Capital Management.

By some measures, retirement savers are doing well overall.

In the second quarter of 2024, 401(k) and individual retirement account balances reached the third-highest averages on record and the number of 401(k) millionaires reached a record high, helped by improved savings behavior and positive market conditions, according to the latest data from Fidelity Investments, the nation’s largest provider of 401(k) savings plans.

The average 401(k) contribution rate, including employer and employee contributions, now stands at 14.2%, just below Fidelity’s suggested savings rate of 15%.

Yet there is still a gap between what savers put aside and what they will need when they retire.

While many employees with a workplace retirement savings plan contribute just enough to qualify for an employer match, “9% (assuming a typical savings rate of 5% and a matching contribution of 4%), mathematically speaking, is not going to put enough money in that piggy bank,” Reeves said.

“It’s not called a ‘standard safe haven match’ for nothing,” she added. “Later in our careers, we should be saving 15 to 20 percent.”

“I don’t think you ever feel completely up to date,” said Lisa Cutter, 56, of Terre Haute, Indiana.

Cutter, who works as an administrator in higher education, said it took her a while before she could put anything toward long-term savings.

“When I entered the workforce, I was a teacher and I had no money; I was broke,” Cutter said.

Today, Cutter, a single mom, has to prioritize her savings. To stay on track, she relies on the retirement tools and calculators that come with her employer-sponsored plan.

“I’d probably like to retire around 67,” she said.

Other reports show that the retirement savings gap is weighing heavily on Americans as they approach retirement age.

LiveCareer’s Retirement Fears Survey found that 82% of workers have considered delaying retirement for financial reasons, while 92% are concerned about having to work longer than originally planned.

Nearly half of Americans worry about running out of money when they stop earning a salary — and 70% of retirees regret not starting to save sooner, according to another study by Pew Charitable Trusts.

According to the recent report “Retirement Prospects for the American Middle Class” from the Transamerica Center for Retirement Studies, only one in five middle-class households are confident they will be able to retire comfortably. The middle class is broadly defined as those with annual household incomes between $50,000 and $199,999.

“The American middle class is facing a turbulent post-pandemic economy and high inflation rates,” said Catherine Collinson, CEO and president of the Transamerica Institute. “They are focused on their health and financial well-being, but many are at risk of not being able to enjoy a financially secure retirement.”

“If you do less at 30, you’ll still have more at 60 than if you did more at 50,” Bryn Mawr’s Reeves said.

More than any other financial mistake, 22% of Americans said their biggest financial regret was not saving early enough for retirement, according to another Bankrate report.

But there is no easy way to make up for lost time.

“Inflation and high prices are cited as the biggest obstacles to solving our financial problems,” said Greg McBride, chief financial analyst at Bankrate.com. “Don’t expect an overnight solution.”

There are, however, habits that can help.

Retirement savings can be “automated through payroll deductions, direct deposits and automatic transfers,” McBride said. “Start small and after a few pay periods, you won’t regret what you don’t see.”

In addition to automatic deferrals, Reeves recommends opting for an automatic escalation feature, if your company offers it, which will automatically increase your savings rate by 1% or 2% each year.

Savers close to retirement can even boost their nest egg.

“Everybody turns 50 and says, ‘Wait a minute,’” Reeves said, so “there are other opportunities that come along because a lot of people are stuck at that point.”

Currently, “catch-up contributions” allow savers age 50 and older to contribute an additional $7,500 to 401(k) plans and other retirement plans beyond the $23,000 employee deferral limit for 2024.

It’s also important to create a separate savings account for emergency money, Collinson advised, “which will help you avoid dipping into your retirement account in the event of a disaster.”

Similarly, ensure you are properly insured and employable by staying up to date with the latest technology and training, she added, to avoid potential income disruptions.

“The most important ingredient is access to meaningful employment throughout your working years,” Collinson said.

Most experts recommend meeting with a financial counselor to solidify a long-term plan. Free help is also available from the National Foundation for Credit Counseling.

CNBC Events
CNBC Women and Wealth
On CNBC’s Women & Wealth, we explore ways women can increase their income, save for the future and make the most of today’s opportunities.

REGISTER NOW! Join CNBC’s free virtual event Women and Wealth on September 25 to hear from financial experts who will help you fund your future, whether you’re returning to the workforce, starting a new career or simply looking to improve your relationship with money. Register here.