In a recent analysis conducted by Fidelity, it was reported that the average 401(k) plan savings rate has reached a record high of 14.2% during the first quarter of 2024. This percentage is close to the popular benchmark of 15%, which is recommended by Fidelity as a key step towards maintaining one’s lifestyle in retirement.
When determining the right retirement savings rate for an individual, several factors come into play. These factors include age, expected retirement date, cash flow, projected Social Security income, pensions, and other retirement plans. It is essential to consider these factors when deciding on a savings rate that aligns with your financial goals.
One of the key incentives for employees to increase their 401(k) savings rate is the company match. Many companies offer a matching contribution based on the employee’s deferral rate. For example, a common match formula is a 100% match on the first 3% of employee deferrals and a 50% match on the next 2%. Taking advantage of this match can significantly boost your retirement savings over time.
To encourage employees to save more for retirement, many companies have implemented automatic enrollment in their 401(k) plans. This means that eligible employees are automatically enrolled in the plan unless they choose to opt-out. Additionally, automatic contribution increases have also been effective in boosting savings rates. More than 33% of plan participants increased their 401(k) contributions at the end of 2023, with three-quarters of those increases being automatic adjustments.
With the combination of automatic enrollment, company matching contributions, and automatic contribution increases, there has been a positive trend in 401(k) savings rates. According to Fidelity, about 78% of 401(k) plans that auto-enrolled employees also had auto-escalation in 2022. These initiatives have led to an overall increase in savings rates among plan participants.
Increasing your 401(k) savings rate is crucial for building a secure financial future. By taking advantage of company matching contributions, considering your individual financial situation, and utilizing automatic enrollment and contribution increases, you can work towards reaching your retirement savings goals. It is important to review your savings rate periodically and make adjustments as needed to ensure you are on track to meet your financial objectives.