About 3 in 10 working Americans (29%) have boosted their 401(k) contribution rate in 2019, while nearly half (46%) are contributing the same and 16% are contributing less.
This according to Bankrate’s August Financial Security Poll, released on Aug. 21, which surveyed 2,016 respondents in July and August.
The good news, Bankrate says, is the percentage of Americans who are saving more for their retirement has improved steadily throughout the economic recovery. In fact, the rate is nearly double that of 2011, when just 15% of workers said they had increased their 401k contribution rate.
The 16% who said they have cut back on their 401k contribution rate this year falls within the range of 13% to 18% that have done so since 2012.
About 6% of workers said they didn’t contribute to their retirement accounts in either year, while 4% didn’t know or refused to answer the question.
The results come on the heels of a recent Bankrate survey in May and another earlier this month from TD Ameritrade that showed Americans’ biggest financial regret is not saving enough for retirement.
Bankrate says this inability to increase savings is troubling because of its implications for Americans’ future financial security. It’s especially worrisome that a sizable number of Americans are unable to take full advantage of the power of compound growth to let their money work for them. They’re also missing out on the tax-deferred growth offered by these accounts and may be missing other tax breaks for saving money in retirement accounts.
“The power of compounding makes time your greatest ally when saving for retirement and adds an urgency to contribute now, not later, giving your money more time to grow,” says Greg McBride, CFA, Bankrate chief financial analyst. “At any age, there is no better time than the present to ramp up retirement contributions.”
Salary level impacts rate-boosting
The new survey shows that workers’ propensity to save for retirement increases steadily with income levels.
The highest-income workers in the survey (those earning $75,000 or more annually) were twice as likely to have increased their savings rate compared with the lowest-income respondents (earning $30,000 or less), coming in at 41% to 20%, respectively.
Among those who said they are saving less, they were four times more likely to be lowest-income respondents than the highest-income workers (26% to 6%).
Of those contributing the same amount as last year, the level of income seemed to make little difference in their savings rate. All income groups reported between 44% and 47% of respondents saying they contributed the same as last year.
For those who were contributing more than last year, age played little role. The likelihood of higher contributions was consistent across ages 23-64, with older Millennials (ages 30-38) being the most likely to say they increased their retirement savings rate (32%).
However, for workers above age 65, contributions were much more likely to have declined (23% vs. 16%), as the number of hours worked tend to fall for those nearing retirement.
Why more Americans aren’t boosting contributions
The most common reason (cited by 24% of respondents) for why they weren’t saving more for retirement this year was they were comfortable with their level of their retirement savings or the amount they were contributing.
Older Americans (ages 55 to 73) were more likely to offer this response than younger ones (ages 23 to 38) by nearly a 2-to-1 margin, 32% to 17%. And when it comes to income, the highest-income earners were more than three times more likely to offer this reason than the lowest-income group.
But for many workers, the lower savings rate has to do with stagnant or declining income. About 23% of Americans named this factor, with lower-income households skewing heavily to this reason at 34%. Those with incomes under $30,000 were almost twice as likely to give this reason as any other income group.
Other top responses included 16% saying they are currently focused on another financial priority, while 12% mentioned rising household expenses as a barrier. Another 12% said they hadn’t gotten around to increasing their savings yet, while 8% named an unexpected financial emergency as their reason.
“Not getting around to it” was a more popular response for younger Millennials (16%) and households with lower-than-average income (16%) than for other groups.
Among Millennials overall, “stagnant income” and “focused on another financial priority” were the most frequent responses, at 26% and 19% percent.
“The reasons Americans cite for not increasing retirement contributions indicate a continued lackadaisical approach to retirement savings—whether it’s complacency with current contributions, focus on other financial priorities, rising household expenses or just not getting around to it,” McBride says.
Many Millennials are missing out on the biggest potential gains because they’re unable to take advantage of the power of compounding. With their long time to retirement, they lose the most by waiting to contribute or delaying a boost in contributions.
“Saving for retirement needs to be made a bigger priority for the millions of Americans that aren’t saving, got started late, or are behind on their retirement savings,” McBride says.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
