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401k Savers Make Little Progress

Despite the mounting pressures on Americans of all ages to save for retirement, our saving habits haven’t changed in 10 years.

The combined employer and employee contributions to 401(k)s consistently hover around 10 percent of workers’ pay, according to “How America Saves 2018,” an annual report by Vanguard, which administers thousands of employer 401(k)s and other defined contribution plans.

Retirement account balances aren’t going up either. The typical participant’s 401(k) balance is no larger than it was in 2007, even though accounts grew 7 percent last year, to $26,000, thanks to a strong stock market. The balances, when adjusted for inflation, are slightly smaller.

The growing adoption of 401(k) plans that automatically enroll their workers is having both negative and positive influences on the account balances.  Employers tend to set employees’ contributions in these plans at a low 3 percent of their pay.  This has had a depressing effect on balances, but it has been offset somewhat in recent years by a modification to auto-enrollment plans: more employers are automatically increasing their workers’ contribution rates periodically.

Baby boomers with a few short years left to save are particularly under pressure to increase their savings. The typical boomer has accumulated only $71,000 in his current employer’s retirement account, according to Vanguard. Total account balances are generally larger, however – though still often inadequate – because many baby boomers have rolled over savings from past employer 401(k)s into their personal IRA accounts.

Overall, the situation for all workers hasn’t really changed and neither has Vanguard’s message to future retirees.

“Going forward, we need to reach for higher contribution rates for more individuals,” Jean Young, senior research analyst says in the company’s video above.

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