Key Takeaways:
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- The average 401(k) savings rate reached a record 14.3% of income in Q1 2025, just shy of the 15% annual savings rate recommended by financial advisers.
- Savings rates have steadily increased from 13.5% in 2020, with contributions including 4.8% from employers and the rest from employees.
- Baby boomers lead with an average savings rate of 17.2%, followed by Gen X at 15.4% and millennials at 13.5%.
- Despite progress, 40% of U.S. households remain at risk of being unable to maintain their standard of living in retirement.
What Happened?
Americans are saving more for retirement than ever before, with the average 401(k) savings rate hitting 14.3% of income in the first quarter of 2025, according to Fidelity Investments. This marks a significant improvement from 13.5% in 2020 and brings savers closer to the 15% target recommended by financial advisers for a secure retirement.
The increase comes despite market volatility, which caused average 401(k) balances to fall 3% to $127,100 in the first quarter. Fidelity, the largest 401(k) administrator in the U.S., reported that 17.4% of account holders increased their savings rate, while only 5% reduced it, and less than 1% stopped saving altogether.
Automatic enrollment and escalation features in 401(k) plans have played a key role in boosting savings rates. Over one-third of companies now start workers at a 5% contribution rate or higher, with many plans automatically increasing contributions annually.
Why It Matters?
The rise in 401(k) savings rates reflects a growing awareness of the importance of retirement planning and the effectiveness of automatic enrollment and escalation features. With 70% of the private-sector workforce now having access to 401(k) plans, more Americans are on track to achieve their retirement goals.
However, challenges remain. About 40% of U.S. households are still at risk of falling short in retirement, particularly those without access to employer-sponsored plans. Higher earners also face additional pressure to save more, as Social Security replaces a smaller percentage of their income.
The data highlights the need for continued efforts to expand retirement plan access and encourage higher savings rates, especially among younger generations and lower-income workers.
What’s Next?
Employers are likely to continue enhancing 401(k) plans with features like higher default contribution rates and automatic escalation to help workers save more. Policymakers may also explore initiatives to expand retirement plan access to underserved populations.
For individuals, maintaining or increasing contributions, even during periods of market volatility, will be critical to building a secure retirement. Financial advisers recommend aiming for a 15% savings rate or higher, particularly for higher earners, to ensure sufficient income replacement in retirement.
As savings rates approach recommended levels, the focus will shift to ensuring that investment strategies align with long-term goals and that more Americans have access to the tools they need for a secure retirement.
