A looming retirement savings crisis is becoming increasingly evident for individuals with 401(k) plans and other retirement balances that fall short of what is necessary for a comfortable retirement. However, there is a glimmer of hope for some workers known as “super savers” who are successfully growing their retirement nest eggs. These super savers dedicate more than 10% of their salaries towards their retirement plans, as revealed by new research from the Transamerica Institute and Transamerica Center for Retirement Studies.
According to the 2023 study conducted by Transamerica, 44% of workers fall into the category of super savers, with 15% saving between 11% to 15% of their annual pay towards retirement. Additionally, 29% of super savers are contributing more than 15% of their salaries. It is important to note that super savers come from all age groups, with Generation Z leading the pack at 53%, followed closely by millennials and baby boomers at 44%, and Generation X at 40%.
Accumulating substantial retirement balances is a gradual process that requires dedication and consistent effort over an extended period. As Ted Jenkin, a certified financial planner, aptly puts it, there are no “microwave millionaires.” Achieving a $1 million 401(k) balance necessitates a high contribution rate sustained over many years. The current maximum contribution limit for 401(k) savers is $23,000 per year, or $30,500 for those aged 50 and above, although high earners may be able to save even more depending on their retirement plan.
Vanguard’s recent research revealed that 14% of their defined contribution clients reached the maximum contribution limits in 2023, with the majority of these individuals having higher incomes. Notably, over half of participants earning above $150,000 were able to contribute the maximum amount allowed. Additionally, those who reached the limits tended to be older, with 16% of participants over 65 hitting the maximum savings thresholds. These individuals also had longer tenures with their employers and higher account balances.
To become a super saver and secure a comfortable retirement, experts recommend focusing on increasing your savings rate rather than fixating on account balances. Recent data from Fidelity and Vanguard shows that savers are making progress, with the average total 401(k) savings rate inching closer to the recommended 15% threshold. Automatic enrollment plans and annual savings increases are instrumental in boosting savings rates over time.
Financial advisor Ted Jenkin emphasizes the importance of the “rule of thirds” when it comes to managing your finances and savings. According to Jenkin, when you receive a pay raise or bonus, allocate one-third towards taxes, one-third towards increasing your savings and investments, and the remaining one-third towards personal enjoyment. This strategy helps individuals avoid lifestyle inflation and stay focused on long-term financial goals.
Achieving super saver status and building a robust retirement nest egg requires consistent effort, strategic planning, and a commitment to a higher savings rate. By following expert advice, setting incremental savings goals, and leveraging tools like automatic enrollment and annual savings increases, individuals can work towards financial security and a comfortable retirement. Remember, the key to financial success lies in prudent planning, disciplined saving, and a long-term perspective on wealth-building.