### Unlocking the Secrets to Retirement Savings
When it comes to planning for retirement, it’s crucial to have a clear understanding of how much you need to save. While the general rule of thumb is to aim for a savings rate of 15%, this number can vary based on a variety of factors unique to your situation. According to Mike Shamrell, vice president of thought leadership for Fidelity’s Workplace Investing, “The 15% is just a goalpost.”
Factors such as your age, expected retirement date, cash flow, projected Social Security income, pensions, and retirement plans all play a role in determining the right retirement savings rate for you. However, Shamrell emphasizes that even if you can’t reach that 15% mark, it’s essential to at least contribute enough to get your full company match.
For example, Fidelity’s most common match formula involves a 5% contribution rate with a 100% match on the first 3% of employee deferrals and a 50% match on the next 2%. This means that if you contribute 5% ($100), the company will match $80.
Certified financial planner Andrew Herzog recommends target savings rates of 10% to 30% depending on the household’s circumstances. While a 20-year-old struggling to make ends meet may aim for a 10% savings rate, a 50-year-old couple looking to retire comfortably may need to save 20% of their income.
### The Rise of 401(k) Savings Rates
In recent years, both individual savings rates and company contributions to 401(k) plans have been on the rise. Many companies now automatically enroll eligible employees in the 401(k) plan, with an opt-out option if they choose not to participate. This has led to an increase in default contribution rates, with nearly 40% of auto-enrolled plans starting employee deferrals at 5% or higher.
Automatic 401(k) contribution increases have also played a significant role in boosting savings rates. More than 33% of plan participants increased their 401(k) contributions at the end of 2023, with about three-quarters of those increases being automatic adjustments. Additionally, 78% of 401(k) plans that auto-enrolled employees also had auto-escalation features in 2022.
By combining these factors, there are positive trends emerging in terms of retirement savings rates. It’s clear that the landscape of retirement planning is evolving, and individuals have more opportunities than ever to secure their financial futures. Stay tuned to Extreme Investor Network for more insights and strategies to help you achieve your retirement goals.