Economic uncertainty resulting from the COVID-19 pandemic surprisingly caused U.S. workers to put more money into their 401k plans in 2021 than the previous year.
According to a new report from Denver-based recordkeeper Empower Retirement, workers are saving more—and with greater confidence. This follows earlier news that reported individuals had disposable income for retirement savings due to restaurants and movie theaters closing during the pandemic.
The “Empowering America’s Financial Journey” study unveiled other key trends that have developed as a result of the pandemic:
- The majority of workers (three in five) believe they are saving enough in their 401k plan. The average worker savings rates are higher (8.2% vs. 7.8%), and the percentage of eligible participants contributing to their 401k plans has also risen (85% vs. 84%).
- Gen Z continues to surprise and account for the highest proportion of savers contributing to their workplace retirement plans, with their overall percentage even higher than those of working Baby Boomers.
- At 49%, women feel less confident than men (64%) that they are saving enough in their 401k plans. Their savings on average also trails men (7.9% vs 8.5%), but women are saving at higher average rates than men at income levels above $60,000.
- While automatic features in plans help spur participation, savers appear to be mostly unengaged with such savings plans after enrollment.
- Almost one in five 401k participants are diversifying their taxable retirement savings by making Roth contributions, and the study shows that Roth contributors are saving at a much higher rate than those not contributing to Roth accounts (10.2% vs 7.9%).
“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.”
Empower Retirement is the nation’s second-largest retirement plan recordkeeper by total participants and administers approximately $1.1 trillion in assets for more than 12 million retirement plan participants. The study looked at the data from approximately 4 million active corporate defined contribution plan participants.
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
