Employees saved for retirement in 401(k)s and other employer-sponsored plans at a record rate last yr, and the common account balance rose nearly 20% thanks largely to a robust stock market.
In response to latest data from Vanguard, the common deferral rate amongst plan participants was 7.4% in 2023, tying the previous all-time high in 2021. Counting employer contributions, the common contribution rate was 11.7%, also a record.
The investment management company’s annual “How America Saves” report analyzes data on nearly 5 million staff’ retirement accounts, which include 401(k)s, 403(b)s and a small variety of other plans. The 100-plus page report provides an in depth picture of retirement savings trends.
“2023 was a yr of progress,” John James, managing director and head of Vanguard’s institutional investor group, said within the report. “Despite stubborn inflation, plan participation and participant saving rates reached all-time highs.”
James noted that more plans now have automatic enrollment, which is contributing to the rise in participation and savings rates. The share of plans that routinely enroll staff is as much as 59%, in comparison with 50% in 2019.
Thousands and thousands of staff use 401(k)s to avoid wasting, and the tax benefits make them a strong tool for retirement. These plans allow employees to contribute pre-tax income to their accounts and invest the cash in funds or other options. Savings are usually not taxed until you’re taking withdrawals, which is favorable assuming you will be in a lower tax bracket whenever you need the cash in retirement.
401(k) contributions and balances rise
Vanguard reports that a record variety of participants increased their account contribution rate in 2023. The share that made an upward adjustment was 43%, “driven partially by plan design features like automatic annual savings increases,” in response to the report.
The typical account balance was $134,128 last yr, a rise of 19% from the prior yr. The expansion, driven by strong stock market performance, was much-needed excellent news for retirement savers after 2022 went down because the worst yr for retirement account performance for the reason that Great Recession.
Average retirement account balance by age
When you’re wondering how your retirement savings stack up on your age group, here’s a breakdown of the common Vanguard account balances in 2023:
- Under 25: $7,351
- 25 to 34: $37,557
- 35 to 44: $91,281
- 45 to 54: $168,646
- 55 to 64: $244,750
- 65 and up: $272,588
While the increases in savings rates and balances are positive developments, many Americans are still behind on saving for retirement.
In response to a separate survey from Schroders released Tuesday, 29% of workplace retirement plan participants expect to retire with greater than $1 million of their accounts. But as the info above indicates, average balances are far off that level.
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