It’s a rare bit of good news on the retirement front: Record contribution rates for 401(k) accounts continued in 2023.
The average percent of salary funneled into plans maintained 2022’s record pace of 11.7%, when combining contributions from both employees and employers, according to Vanguard Group’s annual How America Saves report.
Employees alone contributed an estimated average of 7.4%, and an unprecedented 43% of savers either hiked their contribution rate themselves or had it bumped up through auto-escalation features.
Against the usual drumbeat of news and studies about America’s retirement crisis, and with inflation making it harder to save, seeing record savings rates is surprising. But with 59% of plans at Vanguard automatically enrolling workers in 401(k)s and popular auto-escalation features that bump up contribution rates by 1% annually, the power of inertia is working for many savers.
Still, signs of financial stress were evident in the report. The percentage of participants taking hardship withdrawals hit a record 3.6%, up from 2.8% in 2022. Just under 40% of those withdrawals went to avoiding a home foreclosure or eviction, while the next most common reason was for medical expenses.
Additionally, the average account balance — while up last year — was nowhere near the level needed to afford a comfortable retirement, especially with Social Security benefits facing a potential cut in the next decade. The average balance rose 19% in 2023 to $134,128. That compares to a 24% gain in the S&P 500. However, many workers have multiple 401(k) plans, as well as other savings accounts, so the actual retirement savings may be larger.
This article was provided by Bloomberg News.