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Key Takeaways
- The typical employee contribution rate falls between about 8% and 10%, depending on the data source.
- When employer matches are added, total savings climb to about 12% to 14% of an employee’s salary.
- Contribution rates climb with age: workers under 25 save a combined 9.3% of income, according to Vanguard, while those 55 to 64 save 13.8%.
- If you aren’t reaching the typical figures for your income and age range, you can start by contributing enough to capture your full employer match.
The typical American worker is putting away about 8% to 10% in 401(k) and similar savings plans. When employer matches are included, that number jumps to about 12% to 14%, according to Fidelity and Vanguard.
If you’re in that range, you probably want to know whether you’re saving enough for retirement. The answer depends on a number of factors.
“The ideal contribution rate is really situational,” said David Tenerelli, a certified financial planner at Values Added Financial. “Conventional wisdom says that contributing 15% of gross income to retirement accounts is a good rule of thumb for many people. But if an employer is making matching contributions, those could arguably be factored in.”
That puts many savers within reach of the target—but only 14% of employees at firms that offer defined contribution plans max out, according to Vanguard, and rates vary dramatically by age and income. Here’s how your savings rate stacks up.
The Savings Spectrum
Contribution rates rise steadily with age. According to Vanguard’s figures, workers under 25 have a combined contribution rate between the employer and employees of 9.3%. That climbs to 11.1% for those ages 25 to 34, 11.7% for ages 35 to 44, 12.3% for ages 45 to 54, and 13.8% for workers 55 to 64. Savers 65 and older—many of whom are making catch-up contributions—top out at 14.6%.
Fidelity’s generational breakdown tells a similar story: baby boomers contribute 11.9% of their income on average, followed by Gen X at 10.2%, millennials at 8.7%, and Gen Z at 7.2%.
It’s no surprise that those with more income can save more: Workers earning under $30k save around 9.7% to 10.3% combined, while those making $150,000 and above contribute the most, 13.9%.
Help for the Stretched Saver
The benchmarks from Fidelity and Vanguard assume you have room in your budget to save a significant sum each month. For many Americans, that’s not the case. According to the Federal Reserve, over a third (37%) of adults couldn’t cover a $400 expense completely with cash or its equivalent, and about half (54%) of those ages 18-29 don’t have a retirement account.
“For folks who are having trouble making ends meet, saving for retirement can feel like an unattainable goal,” Tenerelli said. But there are tax benefits designed to help, he noted, including the earned income tax credit and the retirement savers’ credit, which can help you keep enough money to get started on a nest egg.
“Taxpayers can use free tools through online tax filing software to make sure they receive the applicable credits,” Tenerelli said, “and [IRS] tax volunteers can guide taxpayers through those opportunities.”
Tip
Plans with auto-enrollment produce higher savings rates—12.5% on average compared with 11.1% for voluntary enrollment. If your employer offers a plan where you can automatically increase your rate over time, it’s a good idea to opt in. Most people don’t notice the annual bump if it’s an additional 1% or so, but it adds up.
The Match That Closes the Gap
The average employer offering defined contribution plans chips in an additional 4.7% of your income toward your 401(k), bringing the typical worker’s total savings rate to 14.2%—almost at the 15% that Fidelity recommends.
Employer matches vary, but most companies contribute between 3% and 6% of your salary, often matching 50 cents or a dollar for every dollar you put in. That’s free money—and leaving it on the table is one of the costliest financial mistakes you can make for your retirement savings.
If your budget is tight, you can focus on contributing at least enough to capture the full employer match. For most workers, that means saving around 5% to 6% of their paychecks. You can always increase from there once you can spare more of your paycheck.
