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Strategies for a successful retirement

The Rise of Super Savers: How to Build a Solid Retirement Nest Egg

As a retirement savings crisis looms, many workers find their 401(k) balances are falling short of what they’ll need to retire comfortably. The average 401(k) balance for workers 65 and older is $272,588, but the median balance is $88,488.

However, a select group of workers, known as "super savers," are successfully growing their retirement savings by contributing a higher percentage of their salary.

What Defines a Super Saver?

Super savers are individuals who put away more than 10% of their income toward retirement plans, according to research from the Transamerica Institute. But, remember that financial professionals generally recommend saving 15% of your annual income.

In 2023, nearly half of workers—44%—managed to save at least 11% of their salary for retirement. This includes 15% of workers saving 11% to 15% of their pay, and 29% saving more than 15%.

Interestingly, super savers aren’t limited by age. Generation Z leads the charge, with 53% of workers in that cohort saving more than 10% of their salary. Millennials and baby boomers follow closely with 44%, while Generation X lags behind at 40%.

Another survey from the same company found more important data. It showed that 47% of men have at least $100,000 saved for retirement, compared to 33% of women. The survey also found that women have more retirement concerns than men.

The Road to a Million-Dollar Retirement

While it’s possible to reach substantial retirement savings, it takes time. To accumulate $1 million in a 401(k), workers must maintain a high contribution rate over many years.

Currently, the 401(k) contribution limit for 2025 is $23,500 for employee salary deferrals, with the following catch-up contribution limits: 

• Under 50: Not eligible for catch-up contributions 

• 50 to 59 or 64 or older: Eligible for an additional $7,500 in catch-up contributions.

• 60 to 63: Eligible for an additional $11,250 in catch-up contributions

These limits are adjusted annually, and research from Vanguard revealed that 14% of defined contribution plan clients reached these maximums in 2023, typically those with higher incomes.

How Retirement Balances Compare

The largest retirement balances tend to belong to older, higher-income workers. For instance, 53% of those earning over $150,000 contributed the maximum allowed in 2023, and 1 in 6 participants over 65 reached the highest savings thresholds.

Additionally, workers with balances over $250,000 are more likely to be older, with 44% of baby boomers reaching this level. As for $1 million, 16% of baby boomers, 9% of Generation X, and just 4% of millennials and Gen Zers have reached this milestone.

The Path to Super Saver Status

Experts recommend focusing on your savings rate, rather than account balances, to achieve super saver status. Research shows progress: the average 401(k) savings rate at Fidelity hit 14.2% in early 2024, the closest it has ever been to the recommended 15% savings target. In 2023, Vanguard reported a combined savings rate of 11.7% across its plans.

Workers in automatic enrollment plans are also contributing more, with 60% enrolled at deferral rates of 4% or higher. The key to achieving the 15% savings goal often lies in gradual increases over time.

The Rule of Thirds: A Practical Tip for Saving

Experts offer a practical approach to saving: the "rule of thirds."

Whenever you receive a pay raise or bonus, divide it into three parts: one-third for taxes, one-third for increasing savings, and one-third for discretionary spending.

This method helps prevent lifestyle inflation from derailing your retirement savings goals.

By striving to increase your savings rate by 1% each year until you reach the optimal 15%, you can build a solid foundation for retirement. Having a mentor or role model who emphasizes the importance of saving can also provide valuable guidance in managing your finances.

Ultimately, consistency and discipline are key to achieving super saver status and securing a comfortable retirement.

Here’s an interesting video on the topic:

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Nothing in this newsletter is financial advice. Always do your own research and think for yourself.