Americans are reaching retirement savings targets as 401(k) contribution rates hit record highs

The current rate at which American workers transfer their income to their 401(k) retirement accounts has reached a record high of 14.3%, just short of the 15% recommended by experts.

The Wall Street Journal (WSJ) reported that Fidelity Investments, which studies tens of millions of accounts managed by the company, pointed out that in the first three months of this year, the savings rate of 401(k) accounts reached a record high of 14.3% of income; financial advisors often recommend that the annual savings rate of 401(k) accounts over a 40-year career should be 15% of income, which is just short of the current level.

Because of the sharp stock market fluctuations at the beginning of this year, although account balances have declined, savings rates have increased. Mike Shamrell, vice president of Fidelity Investments, said when announcing the data that most people continue to save.

Fidelity is the largest 401(k) retirement savings account manager in the country, entrusting the management of approximately 25,000 corporate clients; the company said that the savings rate of 401(k) accounts has risen from 13.5% in 2020. Employers currently contribute 4.8% of savings, with the rest coming from employees.

In the first quarter of this year, 17.4% of people with Fidelity 401(k)s saved more, while 5% saved less. Less than 1% stopped saving altogether.

Financial advisors generally recommend that people save 12% to 15% of their annual income. At Fidelity, baby boomers save an average of 17.2%, while Generation X and millennials save 15.4% and 13.5%, respectively.

Employers began using 401(k) retirement plans 50 years ago, and now they have finally reached a turning point. About 70% of private sector workers now have access to 401(k) accounts. Many companies have employees automatically enroll, which has greatly increased participation rates.

Fidelity said that companies that currently use automatic 401(k)s have employees saving 5% or more of their salary at the beginning, which is higher than the historical norm of 3%. Many 401(k)s automatically increase employees’ savings rates, generally by 1% per year, and many have reached about 10%.

It’s just that not all workers have access to 401(k)-type retirement savings plans, nor do they necessarily participate in them. Boston College points out that about 40% of American families are currently facing a crisis and cannot maintain their retirement living standards.

Fidelity points out that since the beginning of this year, the average 401(k) balance has fallen 3% to $127,100. As for the more than 24 million people with 401(k) accounts managed by Fidelity, 6% changed their investment portfolios in the first three months of this year, becoming more conservative, and a little more than a quarter.