As the specter of a retirement savings crisis looms for many Americans with 401(k) plans, there is a glimmer of hope in the form of “super savers.” These individuals, who are contributing more than 10% of their salaries towards their retirement funds, are setting an example of prudent financial planning, according to research from the Transamerica Institute and its division, the Transamerica Center for Retirement Studies. While a staggering 56% of workers are still saving 10% or less, the remaining 44% have attained super saver status, with 29% contributing more than 15%.
Contrary to common assumptions, super savers come from all age groups. The study found that Generation Z leads the pack with 53% of super savers, followed closely by millennials and baby boomers at 44%, and Generation X at 40%. These findings underscore the importance of consistent, long-term savings habits in building a substantial retirement nest egg.
Ted Jenkin, a certified financial planner, emphasizes the slow and steady approach to retirement savings. He aptly points out that there are no “microwave millionaires” and that reaching significant sums in a 401(k) requires a high contribution rate sustained over many years. The current contribution limits allow savers to set aside up to $23,000 this year (or $30,500 for those over 50) with additional provisions for high earners. Vanguard’s research reveals that 14% of their clients reached these maximums in 2023, showing a correlation between income levels and savings rates.
The study highlights the correlation between account balances and age, with savers holding over $250,000 typically being older participants. Baby boomers lead the pack with 45% having these higher balances, followed by Gen Xers at 33%, millennials at 24%, and Gen Zers at 16%. While reaching the $1 million mark remains a milestone for many savers, it is a testament to their dedication and commitment to long-term financial planning.
Experts stress the significance of focusing on savings rates rather than account balances in becoming a super saver. Recent data from Fidelity and Vanguard indicates that savers are making progress towards the recommended 15% savings rate. Automatic enrollment plans and annual savings increases play a crucial role in driving savings rates higher over time. Additionally, having a financial mentor or role model can significantly impact an individual’s approach to saving and financial planning.
Ted Jenkin advocates the “rule of thirds” as a guiding principle for managing finances effectively. He suggests allocating one-third of any pay raise or bonus to taxes, another third towards increasing savings and investments, and the remaining third for personal enjoyment. By following this rule, individuals can prevent lifestyle inflation from hampering their long-term financial goals and stay on track towards becoming successful retirement super savers.