Saving for retirement is a crucial aspect of financial planning, and recent data shows that the average 401(k) plan savings rate is on the rise. According to a quarterly Fidelity analysis, the combined 401(k) savings rate reached 14.2% in the first quarter of 2024, which is a record high. This percentage is nearing the recommended benchmark of 15%, set by Fidelity as a key step to maintain one’s current lifestyle in retirement.
The right retirement savings rate varies based on individual circumstances such as age, expected retirement date, cash flow, Social Security income, pensions, and other retirement plans. While the 15% benchmark is a general goalpost, it may not be feasible for everyone. Mike Shamrell, vice president of thought leadership for Fidelity’s workplace investing, suggests at least contributing enough to receive the full company match if the 15% target is unattainable.
The most common match formula for Fidelity plans involves a 5% contribution rate with a 100% match on the first 3% of employee deferrals and a 50% match on the next 2%. Certified financial planner Andrew Herzog recommends target savings rates ranging from 10% to 30% depending on the household’s financial situation. Factors such as age and income level play a significant role in determining the appropriate savings rate.
Many companies automatically enroll eligible employees in 401(k) plans, encouraging saving for retirement. Automatic enrollment typically starts at a contribution rate of 4.1%, but nearly 40% of auto-enrolled plans have employee deferrals set at 5% or higher. Additionally, automatic contribution increases have been successful in boosting savings rates, with more than 33% of participants increasing their contributions at the end of 2023.
As both individual savings rates and company contributions continue to climb, there are positive trends in overall savings rates. About 78% of 401(k) plans that auto-enroll employees also include automatic escalation features, allowing for gradual increases in contributions over time. These initiatives contribute to higher savings rates and better financial preparedness for retirement.
Saving for retirement is a vital component of long-term financial security. While the recommended 15% savings rate serves as a goalpost, it is essential to adjust this target based on individual circumstances. By taking advantage of company matches, setting realistic savings goals, and utilizing automatic contribution features, individuals can work towards building a strong retirement nest egg and ensuring a comfortable future.