Key Takeaways
1. The average 401(k) savings rate hit 11.7% in 2023.
2. Vanguard and Fidelity recommend a 12%-15% savings rate.
3. Individual savings targets vary based on age, goals, and income.
What Happened?
In 2023, 401(k) plan savings rates reached a record 11.7%, according to Vanguard’s analysis of over 1,500 plans and nearly 5 million participants. A separate report by Fidelity noted an even higher combined savings rate of 14.2% in early 2024, based on data from almost 26,000 corporate plans and nearly 24 million participants.
Vanguard advises that you aim for a combined savings rate of 12% to 15% of your earnings, including employer contributions, to ensure a comfortable retirement. The analysis also revealed that 43% of employees increased their savings rate in 2023, and 14% hit the 401(k) deferral limit of $22,500 for those under 50.
Why It Matters?
Hitting the recommended savings rate is crucial for your retirement readiness. With automatic enrollment and higher default savings rates, employees are better positioned to meet these benchmarks. Vanguard’s Dave Stinnett emphasizes that increasing your savings rate by at least 1% each year can help you reach the 12%-15% target.
The trend of higher savings rates suggests that more people are taking their retirement planning seriously, which can lead to greater financial security in the long run.
What’s Next?
Expect continued emphasis on automatic enrollment and incremental savings increases in 401(k) plans. Stinnett notes that many plans now feature automatic annual increases, helping employees gradually boost their savings. Financial experts like Alyson Basso recommend tailoring your savings rate to your individual needs, goals, and circumstances.
Whether you’re just starting or catching up, adjusting your savings strategy can make a significant difference. Keep an eye on plan features and leverage them to maximize your retirement savings.
