Retirement data

[SAJ-99]

I read an article in the WSJ today and it made me wonder. The title if you want to look it up (paywalled)

Americans Are Finally Saving Almost What They’re Supposed to for Retirement​

401(k) savings rates are just a shade below the commonly recommended 15% of income​

Chart is below, but it doesn't add much to the discussion. Fidelity is one of the largest 401K providers, so I don't question the data so much as the assumption. I need someone to check my logic/math on this. For some baseline data, about 70% of employed Americans have access to 401K and most are auto-enrolled. I always thought 15% was a pretty high assumption that made the FA models work better, but whatever. If the max 401k contribution for 2025 is $23,500, then 15% puts the average salary for the INDIVIDUAL in Fidelity's 401k system at almost $160,000 (average salary in US is under $65,000). Seems high. Maybe Fidelity data is skewed and they have really high-earning enrollees? Maybe people are front-loading contributions to the first half of the year so Q1 data is skewed (I have done this, so quite possible)? Maybe a spouse puts away 100% of their earnings while they live on the other's wage? What else am I missing that could get that average so high, because I don't believe it to be reflective of reality. What are the experiences of the individuals on HT?



Once you have determined the answer to that question, apply this chart from FRB STL. Sure, both things can be true, I guess. But sure makes a person wonder how to gauge their own situation and the economy.

 

[westbranch]

I looked up the article. I don't see any reference to the $23,500 max? I think it would just be referring to the person earning 65k putting away around 10-12% and then the employer matching 3-4%?

Earlier in my career (12+ yrs ago) I worked on some 401k audits. The biggest one was a small publicly traded company with ~1500 employees in the Midwest. Medium cost of living area where it was fairly easy to for people to afford a house. There were people making 60k and maxing out their 401k and people making 150k that would opt out of the auto-enrollment and put nothing in.

We have 35 people in our office and pay above average for the area. We match 7.5%, $1 for $1, and still have some employees not putting in 7.5%

 

[Bonasababy]

The max goes up when you hit a certain age--by quite a bit--and many people take advantage of that "catch up" allowance as they near retirement.

So you can't assume a level contribution over a work life--the average has to be higher to accomodate those that contribute a lot in their final years before retirement.

Here's a typical scenario--say you buy a house when young on a 30 year. That gets paid off and you have a lot more money month to month--not long after that for most they can contribute more to their retirement plan. Once they start doing some preplanning many will find they don't have enough yet to live like they want so they increase contributions....

 

[howl]

The vast majority are wholly ignorant on this topic. When I was in high school only the top students were eligible to take the only class on personal finance and investment.

 

[Nick87]

When I was in high school only the top students were eligible to take the only class on personal finance and investment.

We didn't have anything like that offered.

 

[Big Sky Guy]

I didn’t read the article but the way I’m reading this is it’s based on 401k enrollees. That right there makes the title incorrect? Shouldn’t it be “Americans enrolled in 401k plans are finally saving what they’re supposed to.”

To me it does make sense that the majority of those enrolled are near this as they are most likely to be “taking good advice.”

If this is true even outside of 401k enrollees then we can defund Social Security as the majority of Americans will be multi millionaires and have plenty of savings for their golden years!

 

[SAJ-99]

I looked up the article. I don't see any reference to the $23,500 max? I think it would just be referring to the person earning 65k putting away around 10-12% and then the employer matching 3-4%?

Earlier in my career (12+ yrs ago) I worked on some 401k audits. The biggest one was a small publicly traded company with ~1500 employees in the Midwest. Medium cost of living area where it was fairly easy to for people to afford a house. There were people making 60k and maxing out their 401k and people making 150k that would opt out of the auto-enrollment and put nothing in.

We have 35 people in our office and pay above average for the area. We match 7.5%, $1 for $1, and still have some employees not putting in 7.5%

I think I confused/overthought the situation a little bit (and this article is "making the rounds" as they say). The $23,500 is the IRS max for 2025. So your point is valid. A person earning $65,000 can put away 15%, not hit the max (only saving $9750) and live on the $57,000, I guess. That person probably isn't paying much Fed income tax. The whole thing assumes that people are living on their current salary just fine. I think my problem is more with the title. There is nothing magical about 15%. We can still be putting away 15%, on average, and still end up with a balance at the beginning of retirement that is too small. Particularly given we are living longer. Percentage of income and total cash balance are two different things.

 

[ashersdad]

I think I confused/overthought the situation a little bit (and this article is "making the rounds" as they say). The $23,500 is the IRS max for 2025. So your point is valid. A person earning $65,000 can put away 15%, not hit the max (only saving $9750) and live on the $57,000, I guess. That person probably isn't paying much Fed income tax. The whole thing assumes that people are living on their current salary just fine. I think my problem is more with the title. There is nothing magical about 15%. We can still be putting away 15%, on average, and still end up with a balance at the beginning of retirement that is too small. Particularly given we are living longer. Percentage of income and total cash balance are two different things.

You're exactly right. Alot depends on when you started saving. 15% if you started in your 20's or 30's might do it. If you didn't start until your 40's or 50's, 15% probably won't be nearly enough.

 

[Khunter]

I am an old fart and certainly put away the max including catch up ($31,000 in my case) in addition to the 6% contribution matched with 6% from employer. Been at that (max allowed) since I was 25 nonstop. As has the wife.

Hard to imagine any sane person choosing otherwise other than doing exactly that if a fat trust fund was not in the cards.

Have a retirement planning meeting within the hour with a professional to review the state of things.

 

[Bonasababy]

I didn’t read the article but the way I’m reading this is it’s based on 401k enrollees. That right there makes the title incorrect? Shouldn’t it be “Americans enrolled in 401k plans are finally saving what they’re supposed to.”

To me it does make sense that the majority of those enrolled are near this as they are most likely to be “taking good advice.”

If this is true even outside of 401k enrollees then we can defund Social Security as the majority of Americans will be multi millionaires and have plenty of savings for their golden years!

Yep. Add to this many employers have come to realize that going further to make it easier to understand and invest is a good business decision for them too. I know I have seen that in many places I and my kids and wife have worked. Things like the employer automatically taking a contribution from the employee and having to opt out rather than option in how much, multiple encouragements to hit a target percentage if possible, etc.

The one thing where employees are being taken in some cases is in the choices to invest in where employers could easily find lower cost options but don't, work with someone on kickbacks that cost employees more etc., but that's another story entirely.

 

[Bonasababy]

I think I confused/overthought the situation a little bit (and this article is "making the rounds" as they say). The $23,500 is the IRS max for 2025. So your point is valid. A person earning $65,000 can put away 15%, not hit the max (only saving $9750) and live on the $57,000, I guess. That person probably isn't paying much Fed income tax. The whole thing assumes that people are living on their current salary just fine. I think my problem is more with the title. There is nothing magical about 15%. We can still be putting away 15%, on average, and still end up with a balance at the beginning of retirement that is too small. Particularly given we are living longer. Percentage of income and total cash balance are two different things.

Again you need to factor in the total picture. IRS regs allow the max contribution you noted to increase by 7500 a year once you turn 50--and up to 11,500 once you turn 60. So the max is 31K, not 23.5, and 35K once you get older....Total employee plus employer contribution maxes rise to over 80K a year once the employee turns 60.

Look at the age demographics of the worker population. How many are over 50? How many of them increase their contribution as they get to that age and older?

 

[Bonasababy]

I am an old fart and certainly put away the max including catch up ($31,000 in my case) in addition to the 6% contribution matched with 6% from employer. Been at that (max allowed) since I was 25 nonstop. As has the wife.

Hard to imagine any sane person choosing otherwise other than doing exactly that if a fat trust fund was not in the cards.

Have a retirement planning meeting within the hour with a professional to review the state of things.

You must live in one percenter country. What I see is the majority can't max out their contributions unless they are married and are DINK's with good salaries. Most folks are paying off mortgages college loans etc. Again when that all eases is when many convert what they were spending on them to maxing out or at least kicking more into their retirement plans.

 

[Bonasababy]

I will say I wonder when things will turn around. I.e. employers caring less about moving employees into retiirement so they can hire someone new and usually cheaper than keeping them working because they can't find people to work anymore. That's the coming reality unless we start flipping the script on immigration or somehow convince people to make more babies. AI being the wildcard of course.

 

[Irrelevant]

I know (secondhand, so I guess with a grain of salt) doctors who are living paycheck to paycheck... financial literacy is not good and doesn't appear to be getting better.

And plenty of financially literate people who simply realize that there are no golden years promised and that you can't take it with you when you go.

 

[SAJ-99]

Again you need to factor in the total picture. IRS regs allow the max contribution you noted to increase by 7500 a year once you turn 50--and up to 11,500 once you turn 60. So the max is 31K, not 23.5, and 35K once you get older....Total employee plus employer contribution maxes rise to over 80K a year once the employee turns 60.

Look at the age demographics of the worker population. How many are over 50? How many of them increase their contribution as they get to that age and older?

I understand that. I was being conservative. The article gave a breakdown below. I find it hard to believe that people are saving 13% or 15% or 17%. But one thing I missed from the first post was the employer contribution was included. So I'm subtracting 4.8% and wondering if it is any more reasonable given all the complaining about the economy the last few years. I think it is clear that there are two economies - those doing fine and those struggling. Those struggling don't have jobs with 401ks, so they aren't even in the picture (mostly). Those with jobs and 401ks seem to be doing perfectly fine, but are also probably complaining about the economy.

The details​

Average 401(k) savings rates have risen from 13.5% in 2020, according to Fidelity, the nation’s largest 401(k) administrator with about 25,000 client companies. Today’s savings rate includes a 4.8% contribution from employers, and the rest from employee contributions.

In the first quarter, 17.4% of people with 401(k) accounts at Fidelity increased their savings rate, while 5% decreased. Less than 1% stopped saving altogether.

Financial advisers generally recommend that people save about 12% to 15% of their pay annually. Higher earners generally need to save more, since Social Security replaces a smaller percentage of their preretirement income.

At Fidelity, baby boomers saved 17.2% on average, while generation X and millennials put away 15.4% and 13.5%, respectively.

 

[WyoCoalMiner]

I am an old fart and certainly put away the max including catch up ($31,000 in my case) in addition to the 6% contribution matched with 6% from employer. Been at that (max allowed) since I was 25 nonstop. As has the wife.

Hard to imagine any sane person choosing otherwise other than doing exactly that if a fat trust fund was not in the cards.

Have a retirement planning meeting within the hour with a professional to review the state of things.

I stopped maxing out 401K contributions several years ago. Went to a strategy of only contributing enough to get the full employer match. Had reached a point where I felt I was 401K heavy. Take the difference and put it in other investments that are less encumbered by withdrawal age limitations and RMD's.

 

[npaden]

I stopped maxing out 401K contributions several years ago. Went to a strategy of only contributing enough to get the full employer match. Had reached a point where I felt I was 401K heavy. Take the difference and put it in other investments that are less encumbered by withdrawal age limitations and RMD's.

Your 401k doesn’t have a Roth option?

Putting it in your 401k as Roth $ would still give you tax deferral on the earnings and not subject to RMDs.

 

[npaden]

I’ve always said that 15% is the minimum that people should be putting into a 401k including employer match. Thats for each earner in the family if there are multiple earners. Of course more is better but I think if you do 15% your entire career you should be okay.

One thing I see frequently is the higher earner putting in that 15% total number and the lower earner sometimes not even in a plan. You need to be doing 15%+ of combined income.

 

[SAJ-99]

Ok, I feel better now. This data below helps reconcile the number. I blame myself. Although I still don't think 15% is quite the way to look at it. This shows the American worker's retirement plan is still in deep trouble. We still aren't making enough money or saving enough, on average.

 

[Nick87]

We still aren't making enough money or saving enough, on average.

That's easy to belive when you look around.