Despite Volatility, Average 401k Contribution Rates Remain Stable

Average 401k contribution rates

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More evidence today that 401k participants are staying the course so far in 2022 despite inflation and market volatility comes from a new T. Rowe Price report.

During the first half of 2022, over 95% of 401k participants in plans recordkept by T. Rowe Price have not made any investment exchanges. The midyear research update to its 2022 U.S. Retirement Market Outlook also found that less than 1% of workers fully invested in target date funds made any investment changes.

About one in five participants have increased their deferral rate, and deferral rates overall have remained steady at 8.4%. But that’s still well below what the Baltimore-based global investment management firm recommends for participants.

“We continue to suggest that workers save at least 15%, including any employer contribution, of their annual salary for retirement,” said T. Rowe Price Thought Leadership Director Judith Ward, who co-authored the new research paper along with Vice President of Retirement Thought Leadership Sudipto Banerjee.

“More recently, however, the average contribution has trended slightly downward, suggesting workers may be reducing contributions to cope with inflation.”

T. Rowe Price’s Judith Ward

“This is a rule of thumb. In practice, the suggested savings rate will vary from person to person, usually increasing for people with higher incomes,” Ward continued. “For those close to retirement but unable to meet their retirement savings benchmarks, they might consider delaying retirement for a year or two, taking part-time work in retirement, or making spending adjustments.”

Banerjee noted that for most of the first half of 2022, average 401k contribution rates stayed relatively stable. “More recently, however, the average contribution has trended slightly downward, suggesting workers may be reducing contributions to cope with inflation. If high inflation persists and the downward trend in 401k contribution rates is prolonged, it could become problematic because retirement savings might fall.”

In response to these findings, Ward and Banerjee suggest that employers can help workers stay on the right path with saving for retirement through higher plan-level adoption of target date products, communicating risks to workers of trying to time the market, providing access to emergency savings vehicles, and providing access to retirement income tools, products and services.

Ward and Banerjee also offered the following guidance to individual investors on how they can adapt to current market turmoil:

See the summary and supporting data for recommendations for individuals.

SEE ALSO:

• 401k Participants Largely Stand Pat in First Half of 2022

• Down Market Doesn’t Stop DC Retirement Savers: ICI Report

• Defaults Matter: T. Rowe Price Analysis Shows Just How Much

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