The looming retirement savings crisis has left many individuals with 401(k) plans and other retirement accounts that fall short of the necessary funds for a comfortable retirement. However, amidst this crisis, there are a group of individuals known as “super savers” who are successfully growing their retirement nest eggs. These super savers are the ones who are dedicating more than 10% of their salaries towards their retirement plans. According to a study conducted by the Transamerica Institute and its division Transamerica Center for Retirement Studies, 44% of workers have reached the status of super saver, with 15% saving 11% to 15% of their annual pay, and 29% contributing more than 15%.
Super savers come from all age groups, with the youngest cohort, Generation Z, leading the pack with 53% classified as super savers. Following closely behind are millennials and baby boomers, each with 44%, and Generation X with 40%. However, accumulating substantial retirement balances requires time and dedication. As Ted Jenkin, a certified financial planner and CEO of oXYGen Financial, points out, becoming a 401(k) millionaire does not happen overnight. It takes a sustained high contribution rate over many years to reach that milestone.
Maximum Contribution and Savings Levels
High earners have the advantage of being able to contribute even more towards their retirement plans. In 2023, 14% of Vanguard’s defined contribution clients reached the maximum contribution limits, with more than half of participants with incomes over $150,000 contributing the maximum amount. Those who reached the limits tended to be older, with one in six participants over 65 hitting the maximum savings thresholds. Additionally, almost half of the participants who reached the maximum contribution limits had account balances over $250,000.
While reaching the $1 million mark in retirement savings is a significant milestone, only a smaller portion of savers have achieved this goal. According to Transamerica, 16% of baby boomers, 9% of Gen Xers, 4% of millennials, and 4% of Gen Zers have reached the $1 million threshold. However, it is crucial to note that respondents may have included balances accumulated by someone else in their household when reporting these figures.
Focus on Savings Rate
To become a super saver, the focus should be on increasing your savings rate rather than solely on your account balances. Recent data has shown that savers are making progress, with the average total 401(k) savings rate rising to 14.2% during the first quarter of 2024, the closest it has ever been to the recommended 15% savings rate. Automatic enrollment plans and annual savings increases have played a significant role in driving this rate higher.
Experts recommend striving to increase your savings rate by 1% per year until you reach the optimal 15% target. Ted Jenkin emphasizes the “rule of thirds” with clients, where one-third of a pay raise or bonus goes towards taxes, one-third towards increasing savings and investments, and the remaining one-third towards discretionary spending. By following this rule, individuals can prevent lifestyle inflation from impeding their savings goals.
Becoming a super saver and growing your retirement nest egg requires discipline, dedication, and a focus on increasing your savings rate over time. By following expert recommendations and adopting smart savings strategies, individuals can work towards a secure and comfortable retirement.