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Key Takeaways
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Most workers save less than the recommended 15% for retirement, and the gap often starts early.
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Raising contributions in your 20s or 30s gives your money more years to grow.
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Debt, retirement plan loans, and cash-outs after job changes can make it hard to stay on track.
Retirement isn’t something most people in their 20s and 30s spend much time thinking about. At that age, it’s decades away, and there often isn’t much money left after covering expenses and nearer-term priorities, such as saving for a home, paying for a vacation, or simply getting by.
But putting retirement savings on the back burner could make it harder to catch up later. New data suggests many younger workers are falling short of common savings targets, potentially leaving them less prepared for the future than they expect.
Most Workers Are Saving Less Than Experts Recommend
It’s not just younger workers who are falling behind on retirement savings. According to J.P. Morgan, workers across every generation are saving less than commonly recommended targets.
Drawing on data from more than 12 million participants in defined contribution plans, which largely include 401(k)s, the study found that average contribution rates start below 5% for workers in their 20s and peak at around 8% as they near retirement.
That’s well below what financial planners recommend. A common guideline is to save at least 10% of your salary, yet only about one in six plan participants ever reach that threshold. Some experts now recommend saving closer to 15% of income, including employer matches, to stay on track for retirement.
Higher salaries don’t change the picture much, either. Even among the top third of earners—across all age groups—just 22% ever reach a double-digit savings rate.
But being on track isn’t just about hitting a threshold—it’s also about consistency and gradually increasing contributions over time. J.P. Morgan found that someone who starts saving at 25 with a 5% contribution rate, gradually increases it to 8%, and maintains the higher rate over a 40-year career could generate roughly $84,000 more in additional savings than someone who sticks with 5%.
Why This Matters
Starting to save for retirement early gives workers more time to benefit from long-term investment growth. Even small contribution increases in your 20s and 30s can have a much bigger impact than waiting until later in life to save more.
Younger Workers Are Missing a Key Window to Get Ahead
J.P. Morgan’s analysis found that workers in their early-to-mid 20s contribute between 3.7% and 4.5% of their income toward retirement. Those in their late 20s through early 40s do only slightly better, saving between 4.6% and 6.1%.
Even with an employer match—which was offered by 78% of the plans in the analysis, with an average contribution of 3.2% of salary—most younger workers still fell well below the combined 15% total savings rate many experts recommend.
Inertia is another obstacle. Half of workers in their 20s don’t raise their contribution rate from one year to the next. And this habit barely improves with age: 46% of workers in their late 30s also stick with the same savings rate.
That lack of action can be especially costly early in a career. Someone who increases contributions by 1% during the first 20 years of their career could end up with an estimated $60,000 more in savings over that span, while someone who waits and makes the same increase only during their final 20 years of work would gain just $22,000.
Debt and Job Changes Can Quietly Set Retirement Savings Back
Certain financial pressures can make it even harder to stay on track for retirement. One major factor is debt. Nearly one in five retirement plan participants borrow from their account, pulling money out of investments that would otherwise continue growing over time.
For workers in their 20s, loans typically represent about 24% of their entire account balance. Many also pause contributions while repaying the loans, missing out on employer matches in addition to lost investment growth.
Credit card debt can create similar challenges. Workers in their late 20s to early 40s who carry balances exceeding 50% of their credit limit have an average of $27,000 saved in their retirement accounts, compared with roughly $48,000 for peers without that debt burden.
Job changes can also carry a hidden retirement cost. When workers in their 20s leave an employer, 15% of them cash out their retirement savings instead of preserving the money or rolling it over to another retirement account.
How Much You May Need Saved by 30 and 40
Fidelity recommends saving 15% of your income for retirement—employer match included—by age 25, while investing predominantly in stocks early in your career. The financial services firm also suggests having the equivalent of one year’s salary saved by 30 and three times by age 40.
So, for example, someone earning $60,000 a year would aim to contribute roughly $9,000 annually toward retirement savings while working toward a goal of having about $60,000 saved by age 30. An employer match can lower how much has to come directly out of the worker’s paycheck.
If the employer contributes 3% of pay, that would add $1,800 a year on a $60,000 salary, leaving the worker to save about $7,200 annually—or roughly $600 a month—to reach a 15% total savings rate.
Saving for Retirement May Cost Less Than You Think
Contributing to a traditional 401(k) reduces your take-home pay by less than the amount you save because the money is deducted before taxes. For example, someone contributing $9,000 annually toward retirement may see their actual take-home pay only fall by $5,000 to $7,000.
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