The good news: Americans are saving more than they ever have for retirement.
The bad news: They’ll probably need to save even more.
Employees contributed an average of $2,370 per account to their 401(k) plans in the first quarter of 2019, a record level and 15% more than one year prior, according to Fidelity Investments, the Boston-based financial services firm that also manages retirement accounts. Employers also hit a record high with their own contributions to employee plans, partly from company matches and profit sharing plans, at an average of $1,780.
The average employee contribution rate was 8.7% in the first quarter, and the average employer contribution rate was 4.7% during the same time.
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Overall balances also jumped in the first quarter, with 401(k) balances seeing an 8% increase to $103,700 between the fourth quarter of 2018 and first quarter of this year — but up only 1% year-over-year during the first quarter of 2018. Individual retirement account balances rose to $107,100 in the first quarter of 2019, 2% higher than during the same time last year. For 403(b) plans, the average balance increased to $85,800, also up 2% since the first quarter of 2018.
There are more 401(k) and IRA millionaires as well, Fidelity said — 180,000 account holders had $1 million or more in their 401(k) plans, up from 133,800 at the end of last year’s fourth quarter. The number of IRA millionaires jumped from 138,800 last quarter to 168,100 at the end of the first quarter. Fidelity’s data reflects only their own customers.
There’s no doubt about it — Americans are on the right track by saving more, said Meghan Murphy, vice president of Fidelity. In the 12-month period ending at the end of this year’s first quarter, Americans had contributed $6,940 to a 401(k) plan, up from the average $6,260 they contributed in the 12 months of 2018 alone. Not a huge portion of the population is hitting the maximum 401(k) limit, which is $19,000 for individuals under 50 years old (and $25,000 for those 50 and older), but they’re inching upward, and employer contributions help. The average combined total for employee and employer contributions was more than $11,300 in 2018. “In general it’s a positive trend,” she said. “Over time, it does add up.”
But some will need to save more annually so that they can retire comfortably. Financial advisers typically suggest workers save 15-20% of their salary toward retirement, although it is difficult for many Americans who are struggling to balance spending on everyday expenses, paying down student loans, saving for retirement and also having a fulfilling lifestyle with the occasional trips, nights out and entertainment.
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Overall, Americans are undersaved for retirement (even if more data could help determine by how much). Not everyone saves in an employer-sponsored retirement plan when they have access, or when they do, they don’t save as much as the company match (which advisers urge workers do since it’s essentially “free money”).
The issue runs deeper than employee activity — many companies don’t offer a 401(k) or similar plan, and those that do are mostly larger employers. Companies that offer employer matches are typically larger businesses as well, Murphy said.
More companies are beginning to automatically enroll new hires into a 401(k) plan. Auto-enrollment is a good start, as it gets past the initiation and paperwork processes, but even that won’t be enough to get people ready for retirement. Default contribution rates are usually low, and employees may take them as a suggestion for how much to save. Murphy suggests workers increase their contributions 1-2% every year, if the company doesn’t do it for them. “The more they’re able to save, the better,” she said. “The earliest dollars are the ones that will be worth the most.”
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