Savings rates for 401(k) plans have reached record highs in recent years, as both Vanguard and Fidelity reports indicate. In 2023, the average combined savings rate was estimated at 11.7%, matching a record high from 2022. Additionally, a separate Fidelity report found a combined rate of 14.2% for the first quarter of 2024, based on a large number of corporate plans and participants. These numbers highlight the importance of consistently saving for retirement through your 401(k) plan.
Both Vanguard and Fidelity recommend saving between 12% to 15% of your earnings, including employer contributions, for retirement each year. Vanguard’s head of strategic retirement consulting, Dave Stinnett, suggests that individuals aim for a 1% increase in their savings rate annually, to reach the recommended benchmark. The analysis also found that nearly 25% of participants deferred more than 10% of their earnings in 2023, showing a commitment to saving for retirement.
In 2023, around 14% of participants hit the 401(k) deferral limit, indicating a high level of engagement with the retirement savings plan. The average employee deferral rate reached a record high in 2023, demonstrating a positive trend in saving behaviors. Fidelity’s data for the first quarter of 2024 also showed an average deferral rate of 9.4%, reflecting continued efforts to increase savings through 401(k) plans.
Key features of 401(k) plans such as automatic enrollment and higher default savings rates have contributed to increased employee deferrals over time. Plans that automatically enroll participants at higher initial savings rates, with incremental annual increases, encourage individuals to save more for retirement. As a result, 60% of 401(k) plans had a default savings rate of 4% or higher in 2023, compared to just 35% a decade ago according to Stinnett.
Financial experts emphasize the importance of setting personalized retirement savings goals based on individual circumstances. Factors like age, income level, lifestyle expectations, and current debt play a significant role in determining the right savings percentage for each person. Alyson Basso, a certified financial planner, recommends a target savings rate of 15% for most clients, but acknowledges that this can vary depending on specific needs and goals.
While there are general recommendations for savings rates, it is crucial to tailor your retirement savings strategy to your unique situation. Older individuals may need to save more aggressively if they are behind on their retirement goals, while younger individuals can gradually increase their contributions as their income grows. The key is to align your savings strategy with your individual needs, goals, and circumstances, to ensure a secure financial future.