Retirement ‘super savers’ tend to have the biggest 401(k) balances. Here’s what they do

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Super savers are workers who are putting away more than 10% of their salaries toward their retirement plans, according to new research from nonprofit Transamerica Institute and its division Transamerica Center for Retirement Studies.

More than half of workers — 56% — are saving 10% or less, according to a 2023 Transamerica study that surveyed more than 5,700 U.S. workers.

The rest, 44%, have reached super saver status — with 15% of workers putting 11% to 15% of their annual pay toward retirement, Transamerica said. Meanwhile, 29% are contributing more than 15%. Transamerica said it asked those surveyed to indicate what percentage of their salary they were contributing, and told CNBC it is not clear if respondents included company contributions in their answer.

Super savers can be of any age. Notably, the youngest cohort — Generation Z — has the most super savers, with 53%, followed by millennials and baby boomers, each with 44%, and Generation X, with 40%.

But accumulating large retirement balances takes time.

“I always tell people there’s no microwave millionaires,” said Ted Jenkin, a certified financial planner and the CEO and founder of oXYGen Financial, a financial advisory and wealth management firm based in Atlanta.

To reach $1 million in a 401(k), it often takes a high contribution rate that is sustained over many years, said Jenkin, who is a member of the CNBC Financial Advisor Council.

Currently, 401(k) savers can generally contribute up to $23,000 this year, or $30,500 if they are 50 and over. High earners may be able to set aside even more, if their retirement plan allows it.

Those limits are adjusted each year. In 2023, 401(k) savers could save up to $22,500 — or $30,000 for those 50 and up.

New research from Vanguard finds 14% of the firm’s defined contribution clients reached those maximums in 2023. Those savers typically had higher incomes. More than half of participants — 53% — with incomes over $150,000 contributed the maximum.

Those who reached the limits also tended to be older — with 1 in 6 participants over 65 reaching the maximum savings thresholds, according to Vanguard.

Maximum retirement savers also typically have been with their employers for longer and had higher account balances, according to Vanguard. Almost half — 45% — of those participants had account balances over $250,000.

Savers who have $250,000 or more are more likely to be older, according to Transamerica’s research, with 44% of baby boomers having reached that savings level, followed by 33% of Gen Xers, 24% of millennials, and 16% of Gen Zers.

A smaller portion of savers had reached the $1 million mark — including 16% of baby boomers, 9% of Gen Xers, 4% of millennials and 4% of Gen Zers, Transamerica said.

Because the study asked for total household retirement savings, savers who say they reached that threshold may also be including balances accumulated by someone else, noted Catherine Collinson, founding CEO and president of Transamerica Institute and Transamerica Center for Retirement Studies.

To become a super saver, experts say, it’s generally best to focus on your savings rate rather than your account balances.

Recent data shows savers are making progress.

Fidelity found that the average total 401(k) savings rate in its plans rose to 14.2% during the first quarter of 2024, based on employee and employer contributions — the closest it has ever been to the firm’s recommended 15% savings rate.

In 2023, Vanguard found that the average combined savings rate in its plans was an estimated 11.7%, matching a record high from 2022.

About 60% of employees in automatic enrollment plans are enrolled at deferral rates of 4% or higher, according to Vanguard. Automatic annual savings increases help drive that rate higher.

But it takes time for workers to get to the optimal 15% target. Often, knowing to strive for that savings rate — and more — comes informally through word of mouth.

“If they have a financial mentor, a family member or a friend who has taught them about the importance of saving, that also has a huge impact on their focus on saving,” Collinson said.

Having an example may also help those savers better manage other aspects of their financial lives, such as budgeting, spending, increasing their earning potential or seeking higher-paying jobs or careers, Collinson said.

Optimally, 401(k) savers should strive to increase their savings rate by 1% per year until they hit that target, according to Jenkin.

The biggest rule Jenkin says he emphasizes with clients is what he calls the rule of thirds. Whenever you receive a pay raise or bonus, one-third will generally go to taxes, while one-third should go to increasing your savings and investments and the remaining one-third should go to fun, he said.

“That’s your opportunity to not let lifestyle inflation get in the way,” Jenkin said. “Otherwise, the money is going to fall into a black hole.”