Peter Simmons
Retirement savings for young workers often fall short of the 15% income target cited by many experts. J.P. Morgan data shows contribution rates are low across age groups, while debt and job changes can erode progress.
What the contribution figures show
Workers are not saving at commonly recommended rates, and younger employees are among those contributing the least. J.P. Morgan analyzed data from more than 12 million participants in defined contribution plans, which largely include 401(k)s. Average contribution rates began below 5% among workers in their 20s and climbed to about 8% near retirement.
A widely used guideline is to put at least 10% of salary toward retirement. Yet only about one in six participants in the analysis ever reached that rate. Some experts, including Fidelity, recommend saving closer to 15% of income. Even among the top third of earners across all ages, only 22% ever reached a double digit contribution rate.
Age specific results underline how slowly contributions rise. Workers in their early to mid 20s saved between 3.7% and 4.5% of income. For people from their late 20s through early 40s, the rate ranged from 4.6% to 6.1%.
| Measure | Figure in the analysis | What it means |
|---|---|---|
| Common savings guideline | At least 10% of salary | Only about one in six participants reached this rate. |
| Higher expert target | About 15% of income | This can include the employer contribution. |
| Average employer match | 3.2% of salary | Offered by 78% of plans in the analysis. |
| Early career contribution | 3.7% to 4.5% | Observed among workers in their early to mid 20s. |
| Contribution near retirement | About 8% | The average rate peaked below the 10% guideline. |
An employer match helps, but it does not automatically bring a worker to 15%. In the plans studied, 78% offered a match averaging 3.2% of salary. Workers need to check their own plan terms, since both match availability and contribution rules differ by employer.
Small increases early can add up
Time gives retirement investments more years to grow, which is why contribution habits in a person’s 20s and 30s can matter even when the starting amount is modest. In J.P. Morgan’s example, a worker who began at age 25 with a 5% contribution, gradually raised it to 8%, and kept that rate through a 40 year career accumulated roughly $84,000 more than a worker who stayed at 5% throughout.
Incremental changes also beat waiting in another comparison. A worker increasing contributions by 1% during the first 20 years of a career could build an estimated $60,000 more over that period. Making the same increase only in the final 20 working years was associated with an estimated $22,000 gain.
Consistency is a hurdle. Half of workers in their 20s did not raise their contribution rate from one year to the next. Among workers in their late 30s, 46% made no increase. A practical first step is to review the rate after a raise or during the plan’s annual enrollment period, then check whether the plan allows automatic yearly increases. The figures support starting early, but they are estimates, not promised account balances.
Fidelity’s benchmarks offer another way to gauge progress: save 15% of income, including any employer match, by age 25; aim for one year of salary saved by 30; and three times salary by 40. Fidelity also suggests that workers invest predominantly in stocks early in their careers. These are guidelines rather than requirements, and an individual’s account balance can vary with contributions and investment performance.
How a 15% target could fit a $60,000 salary
For someone earning $60,000 a year, a 15% total savings rate equals $9,000 annually. If the employer contributes 3% of pay, that adds $1,800 a year. The worker would then need to contribute about $7,200, or roughly $600 a month, to reach the combined target.
| Example for a $60,000 salary | Annual amount |
|---|---|
| 15% total retirement savings target | $9,000 |
| Employer contribution at 3% | $1,800 |
| Remaining worker contribution | $7,200, about $600 a month |
| Fidelity savings benchmark by age 30 | About $60,000 saved |
A traditional 401(k) contribution is taken from pay before taxes, so take home pay generally falls by less than the amount deposited. In the source example, contributing $9,000 for the year reduces take home pay by about $5,000 to $7,000. The actual effect depends on a worker’s circumstances. Checking a pay statement or plan calculator can help show the change before adjusting a contribution.
Debt and job moves can interrupt saving
Retirement plan loans can shrink balances that would otherwise remain invested. Nearly one in five participants borrowed from a retirement account. Among workers in their 20s, outstanding loans typically equaled about 24% of the account balance. Some borrowers also pause contributions while repaying the loan, which can mean missing employer contributions as well as potential investment growth.
Credit card balances also show up alongside lower retirement savings. Workers in their late 20s through early 40s whose card balances exceeded 50% of their credit limits had an average of $27,000 in retirement savings. Peers without that level of card debt averaged roughly $48,000. The comparison does not establish that card debt alone caused the difference, but it highlights how competing financial demands can coincide with smaller balances.
Leaving a job creates another decision point. Among workers in their 20s who left an employer, 15% cashed out their retirement savings instead of keeping the money invested or rolling it into another retirement account. Before a job change, workers can review the old plan’s options and the receiving account’s rules. A cash out can remove money from long term retirement saving; preserving or rolling over the balance keeps it set aside for retirement.
Elizabeth Daniels