Workers are increasingly contributing more of their income towards retirement, with a significant factor being the increased use of automatic 401(k) enrollment by employers. A growing number of companies are starting new employees at a default contribution rate of at least 6%, which is double the share of organizations that did so a decade ago. This shift towards a higher default contribution rate is largely due to the observation that employees do not typically opt out of the higher amounts, and instead, see their savings grow.
The Wall Street Journal reports that with 6% becoming the new normal, workers are putting a record share of their income towards retirement. One of the benefits of this increased contribution is that workers can better take advantage of matching employer contributions.
Younger workers, in particular, seem to appreciate the time savings that come with automatic retirement savings programs. Many Gen Z and millennial employees have opted into these programs from their first day on the job.
According to Vanguard, about 60% of companies automatically enroll new hires, bringing 401(k) participation rates to 82% of eligible workers — compared to only 66% in 2007. The new standard rate also means employees’ total savings rates are closer to what financial advisors often recommend for a more secure retirement, with most suggesting savings rates around 12% to 15% of annual income.
