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Americans Ramp Up Retirement Savings in 2024, Defying Economic Headwinds
New York – Despite ongoing economic uncertainties, Americans are demonstrating a renewed commitment to securing their financial futures through increased retirement savings. A recent study highlights meaningful trends in 401(k) contributions and workplace retirement plans, showcasing a proactive approach to long-term financial planning.
Record Retirement Savings Rates Achieved
The percentage of income that employees are putting towards a 401(k) plan each month, reached a record high in 2024, averaging 7.7%. This indicates a strong focus on retirement preparedness among the workforce.
Data indicates that 16% of retirement savers actively increased how much they put aside from their paycheck. An additional 29% benefited from automatic increases to their contribution rates.
For context,Fidelity investments reported in early 2024 that 38% of their 401(k) savers increased their contribution rate over the past year.
The data underscores a positive shift in attitudes toward retirement planning, with individuals taking greater control of their financial destinies.
Lauren Valente,Managing Director within Vanguard Workplace Solutions,noted,”Despite economic pressures,plan sponsors and participants continued to move forward in 2024.Widespread adoption of professionally managed allocations helped optimize participants’ age-based equity exposure-and resulted in more disciplined investing.”
Employer 401(k) Matching Contributions: A Key Incentive
Many companies offer an incentive in the form of matching contributions. matching contributions is when a plan matches a percentage of the employee’s contribution.
According to the study, 50% of plans provided only a matching contribution, covering 52% of participants. An additional 36% of plans offered both a matching and a nonmatching employer contribution, covering 44% of participants. Ten percent offered just a nonmatching contribution, serving 3% of participants.
96% of plans, covering 99% of participants, offered some form of employer match.
Among plans offering such a match, 68% utilized a single-tier system. In contrast, 25% had multi-tiered systems. Six percent placed a maximum dollar limit on the employer’s contribution.
Here are some popular match formulas based on the analysis:
- 50% on the frist 6% of pay (13% of plans)
- 100% on the first 3% of pay, with 50% on the next 2% of pay (10% of plans)
- 100% match on the first 6% of pay (9% of plans)
the average match amount was 4.6% of pay, consistent with 2023 figures, illustrating a gradual climb from 4.2% in 2015.
Disclaimer: Consult with a financial advisor before making any investment decisions.
Increased 401(k) Participation and Account Balances
Figures show steady participation in 401(k) and workplace retirement plans, holding at 85%, up from 81% in 2015.This increase is largely attributed to the rise in automatic enrollment plans.
In fact, 61% of plans now offer auto-enrollment, compared to 59% in 2023 and just 41% in 2015.
Did You Know? Automatic enrollment often includes an option for employees to opt-out. Make sure to evaluate the plan before making a decision.
The average account balance has also seen a healthy increase, reaching $148,153, a 10% jump from the previous year.
Investment Strategies and Returns
The average return for 401(k) plan investors was a solid 12.7% in 2024. Over the past three years, investors realized an average annualized return of 5%, while the past five years saw an average annualized return of 8%.
Approximately 75% of assets were allocated to equities (stocks), with 42% in target date funds and 41% in diversified equity funds.
The rise of target-date funds has also reduced trading activity. Only 5% of participants made a trade in 2024, compared to 10% in 2020.
Investment Allocation Trends
here’s a breakdown of how participants allocated their investments:
| Asset Class | Percentage of Assets |
|---|---|
| Target Date Funds | 42% |
| Diversified Equity Funds | 41% |
| company Stock | 2% |
| Balanced Funds | 3% |
| Bond Funds | 6% |
| Cash | 5% |
The average plan offered 27.6 investment options. Although, most participants (64%) only utilized a single fund.Of those investing in one fund,93% chose a target date fund.
Around 67% of participants were invested in a professionally managed fund, highlighting the growing popularity of these options.
Have you reviewed your 401(k) investments recently? are you taking full advantage of any employer matching contributions?
