Average retirement saving rate rebounds to pre-pandemic levels

Two years of economic volatility, stop and start COVID protocols, and a general uneasiness of where the next paycheck is coming from, has naturally affected the savings habits of Americans.

On the bright side, three in five workers are feeling optimistic and believe they are saving enough for their 401(k) plans, according to the Empower Retirement’s Empowering America’s Financial Journey survey. In fact, the average worker savings rates are higher now (8.2%) compared with pre-pandemic levels in the fourth quarter of 2019, where savings rates stood at 7.8%. The percentage of eligible participants contributing to their 401(k) plans has also risen from 82% to 85%. Even better news is that these increases in savings rates span all generational demographics and income levels.

On average, plan participants are saving at recommended income levels of 10% to 15%, saving 8.2% of their salary with 85% of eligible participants contributing to their plans – which is up from pandemic lows.

“Ultimately what we are seeing is that there’s a tremendous case for optimism in the way people have behaved toward their retirement savings and other financial needs through the pandemic,” said Empower Retirement President and CEO Edmund F. Murphy III. “However, there’s also a full range of demonstrated needs across demographic cohorts as people must make the optimal choices to meet their needs, support their families and work toward their goals.”

Breaking down the numbers by demographics, Gen Zers have the highest percentage of participants contributing to their 401(k) plans, which is interesting as they are further away from retirement than other groups.

Millennials have discovered Roth 401(k) plans and have the highest penetration rate (24%) across generations. But there are gaps.

While many people feel they are on the right path towards retirement savings, 69% of those surveyed, in nearly all demographic cohorts say they wished they had started investing earlier. Some of the gap has to do with earnings. People with more than $120,000 of income are saving 57% more than participants with less than $60,000 income. Also, women are saving less compare to men (7.9% vs. 8.5%) and feel less confident they are saving enough. On the other side of that coin, women who earn $60,000 of income are saving slightly higher than man.

A good way to get people motivated is through advice and guidance. The survey says only 48% of Americans feel comfortable making investment decisions. Confidence grows when they work with an advisor (61% vs. 39%), use online advice (62% vs. 39%) and receive advice over the phone (69% vs. 40%).

As with savings being dependent on income so to is the relationship for people who seek out advice from professionals. For example, an increase in income or savings (39%) and accumulating a certain amount of savings (38%) are the most common reasons people seek out advice.

Things change as people get older and seek out investment products that are less dependent on professionals and are considered more DIY. For example, at about age 54, the use of target-date funds seems to slow down and more direct investing starts to overtake it. At the same time, advice usage increases, which is tied to individuals being closer to retirement and needing more guidance from advisors.

The more engaged the participant, the more they seek out and leverage the advice and/or education being offered, and ultimately see higher savings rates than unengaged participants. The more people use these services, the more they take advantage of a combination of them which helps increase saving rates, as well.

Overall, it would appear that Americans have remained steadfast in their desire to save for the future, despite a pandemic that crippled the economy. Savings rates in all demographics continue to climb and are likely to do so going forward.