Here’s the Average 401(k) Savings Rate and Where Your Goal Should Be

The average 401(k) savings rate – including employee deferrals and company contributions – has held steady at historic levels as plan designs make it easier for workers to put money away side.

In 2023, the average combined savings rate was estimated at 11.7%, matching a 2022 record high, according to Vanguard’s annual analysis of more than 1,500 qualified plans and nearly 5 million participants .

A separate report from Fidelity also found record savings with a combined rate of 14.2% for the first quarter of 2024. That report was based on nearly 26,000 business plans and nearly 24 million participants.

Vanguard recommends saving 12% to 15% of your income, including employer contributions, for retirement each year. Fidelity’s benchmark is 15%.

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“You want to increase your savings by at least 1% each year” and aim for that combined goal of 12 to 15%, said Dave Stinnett, head of strategic retirement consulting at Vanguard.

Nearly 25% of participants deferred more than 10% of their income to 2023, according to the analysis. And 43% of workers increased their savings rate that year, Vanguard reported.

In 2023, an estimated 14% of participants reached the 401(k) deferral limit, which was $22,500 for savers under age 50, Vanguard found. This share of workers who maximize their plans it’s the same since 2020.

The average employee exclusion rate returned to a record 7.4% in 2023 after falling slightly the previous year, according to the Vanguard report. Employees deferred an average of 9.4% during the first quarter of 2024, according to Fidelity.

401(k) plan features, such as automatic enrollment and higher default savings rates, have increased employee deferrals over time, Stinnett said.

“They come in with a higher initial savings rate,” he said. “And many of these plans have an automatic escalation or tiering feature that allows people to automatically save 1% more each year.”

About 60% of 401(k) plans had a default savings rate of 4% or higher in 2023, up from 35% with that rate a decade ago, Stinnett said.

Although financial services companies have identified retirement savings benchmarks, the right percentage varies based on individual needs, experts say.

“I generally advise a target savings rate of 15%, combining employee and employer contributions,” but the goal can vary depending on “several factors,” said certified financial planner Alyson Basso, managing director of Hayden Wealth Management in Middleton, Massachusetts.

Your age, proximity to retirement, income level, lifestyle expectations and current debt are among the factors used to decide the right percentage, she said.

For example, older clients may need to save more aggressively if they have not met their retirement savings goals, while younger clients may gradually increase their deferrals as their income increases. . However, Gen Z started investing early, while Gen X has struggled to catch up.

“Every customer’s situation is unique and their savings strategy should reflect their individual needs, goals and circumstances,” Basso added.