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The Average 401(k) Savings Rate Hit a Record – Here’s Why It’s Rising

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How much to save for retirement

“The 15% is just a goal,” with the understanding that everyone’s situation is different, said Mike Shamrell, vice president of thought leadership for Fidelity’s Workplace Investing.

The right retirement savings rate depends on your age, your expected retirement date, your cash flow, projected Social Security income, your pensions and retirement plans, among other factors.

However, “if you can’t reach that 15%, at least try to contribute (enough) to get your company’s full contribution,” Shamrell said.

If you can’t reach that 15%, at least try to contribute (enough) to get your company’s full contribution.

Mike Shamrell

Vice President of Thought Leadership for Fidelity Workplace Investing

The most common matching formula for Fidelity plans is based on a 5% contribution rate with a 100% match on the first 3% of employee deferrals and a 50% match on the next 2%. In other words, if 5% equals $100, the company would contribute $80, Shamrell said.

“We have a savings rate goal of 10 to 30 percent depending on the household,” said certified financial planner Andrew Herzog, an associate wealth advisor at Watchman Group in Plano, Texas.

For example, a 20-year-old who is barely making ends meet may struggle to save 10%, while a 50-year-old couple may need to increase their savings rate to 20% to reach their retirement target dates, he explained.

401(k) Savings Rates Are Rising

Over the years, the individual savings rate and business contributions have continued to climb, Fidelity’s Shamrell said.

Many companies automatically enroll eligible employees in the 401(k) plan, giving them the option to opt out if they do not wish to participate. While the default contribution rate for these auto-enrollment 401(k) plans was 4.1% last quarter, nearly 40% of auto-enrollment plans began employee deferrals at 5% or higher, according to Fidelity.

Automatic increases in 401(k) contributions have also boosted savings rates, according to Shamrell.

More than 33% of plan participants increased their 401(k) contributions at the end of 2023 — and about three-quarters of those increases were automatic adjustments, he said.

Tax Tips 2024: New 401(k) Limits

About 78% of 401(k) plans that employees are automatically enrolled in also experienced automatic escalation in 2022, according to an annual survey from the Plan Sponsor Council of America.

After combining these factors, “you start to see some really positive trends in savings rates,” Shamrell added.

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