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2025-06-27 05:47:00
Retirement Savers Step Up
Record contributions and rising participation mark a shift in retirement planning.
- average 401(k) deferral rate hit a record 7.7% in 2024.
- 45% of plan participants increased their savings rates.
- Average 401(k) match remained steady at 4.6% of pay.
- The average return for 401(k) plan investors was 12.7% in 2024.
Retirement savers are getting serious, as evidenced by the record 7.7% average deferral rate for 401(k) plans in 2024, meaning employees are contributing a larger percentage of their salaries.
This insight comes from an annual report analyzing trends in 401(k) and workplace retirement plan investing. The report, which analyzed data from some 1,400 retirement plans serving more than 5 million participants, highlights a meaningful shift in how Americans are preparing for retirement.
Savings on the Rise
In 2024, a notable 45% of plan participants decided to boost their savings rates, marking an all-time high over the past 24 years. Specifically, 16% of participants actively increased their payroll deferral percentage. Moreover, an additional 29% experienced a boost in their deferral rate through an automatic increase feature.
Lauren Valente, managing director, Vanguard Workplace Solutions, noted that “despite economic pressures and uncertainties, plan sponsors and participants continued to move forward in 2024.” She added that leveraging automatic solutions helped drive participation rates to all-time highs.
Employer Matching Contributions
What is the average 401(k) match offered by employers? The average match came out to 4.6% of pay, consistent with 2023 figures. This average has gradually increased from 4.2% in 2015.
The report also revealed that 50% of plans provided only a matching contribution, covering 52% of participants. Meanwhile, 36% of plans offered both matching and nonmatching employer contributions, covering 44% of participants. Additionally, 10% offered just a nonmatching contribution, serving 3% overall. Combined, approximately 96% of plans, covering 99% of participants, offered some form of match.
Among plans offering an employer match, 68% provided a single-tier match formula, while 25% offered multitier match formulas, and 6% of plans imposed a maximum dollar cap on the employer contribution.
The most common match formula, used by 13% of plans, was a 50% match on the frist 6% of pay. Other popular formulas included a 100% match on the first 3% of pay with 50% on the next 2% of pay (10% of plans), and a 100% match on the first 6% of pay (9% of plans).
Nonmatching contributions are typically structured as variable or fixed profit-sharing contributions or as an employee stock ownership plan (ESOP) contribution.
Participation and Enrollment Trends
Participation in 401(k) and workplace retirement plans remained steady at 85%, consistent with 2023, but up from 81% in 2015. the rise in plans offering automatic enrollment has contributed to this increase. in 2024, 61% of plans offered autoenrollment, up from 59% in 2023 and 41% in 2015.
Investment Returns and Asset Allocation
The average account balance among those surveyed was $148,153, reflecting a 10% increase from the previous year.
What kind of returns did 401(k) investors see in 2024? The average return for 401(k) plan investors was 12.7% in 2024. Over the past three years, investors experienced an average annualized return of 5%, and over the past five years, they saw an average annualized return of 8%.
Approximately 75% of overall assets were invested in equities, with 42% in target date funds, 41% in diversified equity funds, and 2% in company stock. Balanced funds accounted for 3%, bond funds for 6%, and cash for 5% of the investments.
While the average plan offered 27.6 investment options, most participants (64%) only utilized one fund, and the average participant used 2.3 funds. Among those investing in a single fund, 93% were in a target date fund.
Moreover, 67% of participants were invested in a professionally managed fund, marking an all-time high. These professionally managed allocations primarily consist of target-date funds, which adjust allocations based on the expected retirement date, and managed account advisory services.
The increasing popularity of target-date funds has also led to reduced trading activity among participants. In 2024, only 5% of participants made a trade in their portfolio, down from 10% in 2020.
The Impact of Automatic Enrollment and Savings Automation
As highlighted earlier, the rise of 401(k) automatic enrollment played a key role in the increased participation and higher deferral rates witnessed in 2024. But how exactly does this mechanism work, and what other innovations are boosting retirement readiness?
Remember, 61% of plans featured automatic enrollment. This is a significant jump from 41% back in 2015.Automatic enrollment simplifies the process.Employees are automatically signed up. They can opt out if they choose.
The beauty of automatic enrollment lies in its simplicity. Employees are automatically enrolled in the plan, frequently enough at a default deferral rate. They can then choose to opt out or adjust their contribution. This removes the inertia that can prevent people from starting to save.
Automatic enrollment is often paired with automatic escalation. As mentioned before, automatic escalation features are helpful. They automatically increase contributions annually. This helps employees reach their retirement goals faster. Some plans cap the increases when a certain contribution level is reached.
Keep in mind: Research consistently shows that automatic enrollment and automatic escalation improve participation rates and boost savings. These programs tend to work better than requiring employees to take action actively.
while automatic enrollment is a powerful tool, other strategies are also contributing to improved retirement outcomes. One such approach is the use of managed accounts. These accounts provide personalized investment advice and portfolio management services. This support can be particularly beneficial for those who lack the time or expertise to manage their investments.
Another key trend is the greater availability of financial wellness programs.These programs provide employees with access to education, resources, and tools. They help them to make informed decisions about their finances. Topics covered often include budgeting, debt management, and retirement planning.
How does automatic enrollment work, and what are its benefits? Automatic enrollment signs you up for your 401(k) unless you opt out. It increases participation and helps people start saving,leading to better retirement outcomes.
What’s the best way to boost your retirement savings? combine automatic enrollment with a high employer match, if available. Then, take steps to maximize your contributions to take full advantage of these resources.
Practical Tips for Maximizing Your Retirement Savings
Ready to take charge of your retirement? Hear are some steps:
- Enroll in Your Plan: If your company offers automatic enrollment,consider staying in your plan,even if you were previously hesitant.
- Assess Your deferral Rate: Review your current contribution level and consider increasing it. If you’re not sure, start small and increase your contribution by 1% each year.
- Take Advantage of the Match: Contribute enough to your plan to get the full employer match. This is essentially free money.
- Consider a Target-Date Fund: If you are unsure how to invest, a target-date fund can simplify the process. These funds automatically adjust their asset allocation based on your anticipated retirement date.
- Seek Professional Advice: If needed, consult a financial advisor who can help you create a personalized plan.
Myths vs.facts About 401(k)s
There are many misconceptions about 401(k) plans. Let’s clear up a few:
| Myth | Fact |
|---|---|
| I need a lot of money to start saving for retirement. | You can start with small amounts and increase them over time. The key is to start early. |
| I can figure out retirement planning on my own. | While self-direction is absolutely possible, a financial advisor can offer valuable expertise. They can guide you through your personalized plan. |
| 401(k)s are too risky. | While investments can fluctuate, 401(k)s are designed for the long term.Diversification and time can help mitigate risk. |
FAQs
Here are answers to some common questions:
What is a 401(k) deferral rate? The deferral rate is the percentage of your salary you contribute to your 401(k) plan.It’s a critical factor in how much you save for retirement.
How can I find out if my employer offers a 401(k) match? Check your company’s HR portal or plan documents,where match details are usually outlined clearly. If you’re still unsure, contact your HR department or plan administrator directly.
What is the benefit of target-date funds? Target-date funds provide a diversified, automatically rebalanced portfolio. The asset allocation adjusts automatically as you approach retirement. They offer a simplified approach to investing.
How does an automatic increase feature work with my 401(k) plan? It systematically increases your contribution percentage annually. This helps to boost your savings without requiring proactive action, maximizing the potential to reach your retirement goals.
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