Average Americans' 401(k) Contributions, by Age and Income

By Todd Campbell Markets Fool.com

Any number of unexpected financial roadblocks can make setting aside extra money every year for retirement tough. While everyone's situation is different, it can be helpful to educate yourself about how peers are saving, especially if it leads you to make changes that can boost your financial security down the road. Are you contributing more to your retirement plan than the average American? Read on to find out how much American's are stashing away of their income in 401(k) and 403(b) plans every year.

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Retirement savings plans contribution rates

Vanguard's "How America Saves 2016" report finds that contribution rates to defined contribution plans, including 401(k) plans, vary widely depending on age and income, and that the average worker set aside 6.8% of their earnings in these accounts in 2015.

Data source: Vanguard. Author's chart.

Overall, only 20% of 401(k) participants contributed more than 10% to their defined contribution plan that year, and while I didn't find that too surprising given tight budgets, I was surprised to learn that one-third of Americans are saving less than 4% of their income in these plans.

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Since the average income in America is $46,409, a significant number of workers are saving less than $1,856 annually. Contributing at that level over an entire 40-year career could produce a sizable retirement nest egg. However, total retirement savings data suggests that's not the case. For instance, contributing $1,856 per year over a 40-year career into an investment returning a hypothetical 6% annually results in retirement savings of $287,281.54. However, half of baby boomers have saved less than $100,000 for retirement, including 37% who have saved less than $50,000. Considering how close these Americans are to their golden years, those are hardly confidence-inspiring figures that suggest they'll reach that $287,281 level of savings.

Overall, Vanguard finds that just 12% of plan participants are contributing the maximum amount they're allowed to contribute every year. In 2017, up to $18,000 of earnings can be deferred in 401(k) or 403(b) plans. If you're 50 or older, an additional $6,000 catch-up contribution can be made, too, yet only 16% of Americans eligible to make that catch-up contribution are taking advantage of it.

Contribution rates: participant employee-elective deferral rates

Deferral Rate 2011 2012 2013 2014 2015
0.1% to 3.9% 28% 29% 28% 30% 32%
4% to 6%

25%

23% 23% 23% 22%
6.1% to 9.9% 27% 28% 29% 28% 26%
10% to 14.9% 14% 14% 14% 13% 14%
15% or more 6% 6% 6% 6% 6%

Data source: Vanguard. Author's table.

American workers' contribution rates by income and age

Unsurprisingly, the contribution rate of 401(k) and 403(b) participants depends a great deal on annual income and age. On average, lower-income earners contribute far less to their retirement saving plans than high-income earners, and younger workers contribute less than older workers.

In 2015, Americans earning less than $30,000 per year contributed an average 4.4%, which works out to $1,320, or less, per year. Alternatively, workers earning between $75,000 and $99,999 contributed an average 7.7% of their earnings to these plans, and workers earning $100,000 or more contributed an average of 8.3% of their income.

The difference in contribution rates to 401(k) and 403(b) plans is also wide depending on how close workers are to retirement. Workers under 25 who are just getting started are contributing only 4.5% of their income to retirement, while Americans between age 55 and 64 are deferring 8.7% of their income into these plans.

Employee elective deferral rates by worker demographics

Income 2011 2012 2013 2014 2015
<$30,000 4.8% 4.7% 4.8% 5% 4.4%
$30,000-$49,999 5.8% 5.7% 5.8% 5.8% 5.5%
$50,000-$74,999 7% 6.9% 7% 6.9% 6.8%
$75,000-$99,999 8.2% 8.1% 8.1% 7.9% 7.7%
$100,000+ 8.1% 8.1% 8.3% 8.1% 8.3%
AGE
<25 4.2% 4% 4.4% 4.1% 4.5%
25-34 5.6% 5.4% 5.8% 5.5% 5.5%
35-44 6.1% 6.3% 6.4% 6.3% 6.3%
45-54 7.2% 7.2% 7.3% 7.2% 7.2%
55-64 8.6% 8.5% 8.6% 8.5% 8.7%
65+ 9.8% 9.8% 9.8% 9.7% 10%

Data source: Vanguard. Author's table.

Getting on track

Although total account balances in retirement accounts run the gamut, worker defined contribution rates studied by Vanguard reveals that participants have saved a median $26,405. That's unlikely to provide much financial security in retirement, because common wisdom is for retirees to withdraw no more than 4% of their savings annually to avoid outliving them. If you're contribution rates could use a booster shot, the best decision you can make is to sit down with your human resources department to see if they offer an auto-escalator feature on your plan. If they do, then enrolling can provide a simple way to ramp up your contributions over time, without busting your budget.

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