Here’s the average 401(k) savings rate and where your target should be

The average 401(k) savings rate — including employee deferrals and company contributions — has maintained historic levels as plan designs make it easier for workers to set money aside.

In 2023, the average combined savings rate was an estimated 11.7%, which matched a record high from 2022, according to Vanguard’s yearly analysis of more than 1,500 qualified plans and nearly 5 million participants.

A separate Fidelity report also found record savings with a combined rate of 14.2% for the first quarter of 2024. That report was based on almost 26,000 corporate plans and nearly 24 million participants.

Vanguard recommends saving 12% to 15% of your earnings, including employer contributions, for retirement every year. Fidelity’s benchmark is 15%.

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“You want to be increasing how much you’re saving by at least 1% every year,” and aim for that combined 12% to 15% benchmark, said Dave Stinnett, Vanguard’s head of strategic retirement consulting.

Nearly 25% of participants deferred more than 10% of earnings in 2023, the analysis found. And 43% of employees increased their savings rate that year, Vanguard reported.

In 2023, an estimated 14% of participants hit the 401(k) deferral limit, which was $22,500 for savers under age 50, Vanguard found. That share of workers who max out plans has been the same since 2020.

The average employee deferral rate returned to a record high of 7.4% in 2023 after falling slightly the previous year, the Vanguard report found. Employees deferred an average of 9.4% during the first quarter of 2024, according to Fidelity.

401(k) plan features like automatic enrollment and higher default savings rates have increased employee deferrals over time, Stinnett said.

“They’re coming in at a higher initial savings rate,” he said. “And many of these plans have an automatic increase or step function where people automatically save 1% more every year.” 

Some 60% of 401(k) plans had a default savings rate of 4% or higher in 2023, compared to 35% with that rate one decade ago, Stinnett said.

While financial service companies have identified retirement savings benchmarks, the right percentage varies based on individual needs, experts say.

“I typically advise a target savings rate of 15%, combining both employee and employer contributions,” but the target can vary based on “several factors,” said certified financial planner Alyson Basso, managing principal of Hayden Wealth Management in Middleton, Massachusetts. 

Your age, proximity to retirement, income level, lifestyle expectations and current debt are among the factors used to decide the right percentage, she said.

For example, older clients may need to save more aggressively if they haven’t reached their retirement savings goals, whereas younger clients may gradually boost deferrals as income grows. However, Gen Z has embraced investing early while Gen X has struggled to catch up.

“Each client’s situation is unique, and their savings strategy should reflect their individual needs, goals and circumstances,” Basso added.