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Boosting Retirement Savings: A Growing Trend

The average combined savings rate for 401(k) plans has seen a significant increase in 2023, according to a recent industry survey. The rate now stands at 12.7%, up from 12.1% in 2022, with employees contributing 7.8% of their pay and companies adding 4.9%.

A Long-Term Trend

While the deferral rate has experienced dips during economic downturns, it has been trending upward over time. This growth is crucial for meeting retirement needs, as experts recommend saving 12% to 15% of earnings every year, including employer contributions.

The Importance of Company Matching

Companies typically match employee deferrals up to a specified limit, and it’s essential to contribute enough to receive the full match. This can add up significantly over time, making it a vital component of retirement savings. In 2023, more than 80% of plans included a matching contribution.

Boosting Deferrals

After hitting the match, experts suggest increasing deferrals every year. However, even small contributions can lead to growth over time. With the 401(k) maximum employee deferral set to increase to $23,500 in 2025, now is an excellent time to review and adjust deferral rates.

Timing is Everything

When planning to save more in 2025, it’s essential to make changes now. Typically, it takes a few paychecks for 401(k) deferral updates to take effect, so making adjustments in December can ensure readiness for January.

Maxing Out Contributions

While only 14% of employees maxed out their 401(k) plans in 2023, an estimated 15% of workers made catch-up contributions in plans with this feature. By prioritizing retirement savings, individuals can set themselves up for long-term financial security.

Taking Control of Your Financial Future

With the new year approaching, now is an excellent time to review and adjust retirement savings strategies. By taking advantage of company matching, increasing deferrals, and making timely changes, individuals can take control of their financial future and set themselves up for a secure retirement.