401(k) savers hit record contribution rates — here’s how to catch up if you’re behind

Workers are setting record highs in their 401(k) accounts, even as inflation continues to squeeze household budgets.

According to Fidelity’s latest quarterly analysis, 769,000 retirement savers now have $1 million or more in their 401(k). Average 401(k) balances grew 10.5% in the second quarter, marking the strongest quarterly growth since the fourth quarter of 2020, thanks partly to stock market gains.

The total average savings rate also held at record levels for the second consecutive quarter, remaining at 14.4% for 401(k) savers and 12% for 403(b) participants.

Record balances and rising loans

The good news comes with a caveat. Fidelity data shows more savers tapped their accounts for cash to cover expenses. Some 19.5% of retirement savers had an outstanding 401(k) loan in the second quarter, up from 19.2% at the end of the first quarter. The share of workers who took a hardship withdrawal increased year over year to 3%.

The latest inflation data shows continued pressure on household budgets, with costs rising across the board, from gas to groceries. The Consumer Price Index showed some prices decreasing month over month in July. However, the index was still 3.4% higher year over year.

Still, employees have been contributing an average of 9.6% of their pay to their 401(k) accounts, a record high, while employers contributed an average 4.8%.

In the second quarter, 12.1% of 401(k) participants increased their contribution rate, and 81.2% contributed enough to receive their employer’s full matching contribution. IRA savers increased contributions by 36% from the second quarter of last year.

How each generation stacks up

Millennials’ average 401(k) balances increased 14.2% during the quarter and 26.1% year over year, according to the latest data. Millennials and Gen X employees were the highest contributors to traditional IRA contributions, both averaging approximately $6,000.

If your account balance doesn’t align with the average, that doesn’t necessarily mean you’re behind. It’s common for retirement account balances to vary across generations. Separate figures from Fidelity found that the average 401(k) and IRA balances for each generation range from $8,000 to $286,700.

It’s also important to consider how your retirement savings goals, external sources of income, timeline, and other factors will affect your retirement account target and your progress toward it at this stage.

“Someone earning $75,000 with a pension, modest lifestyle, and plans to work until 70 likely needs a very different amount than someone earning $300,000, spending $200,000 a year, and wanting to retire at 55,” said Brian Seymour, CFP and founder of Prosperitage Wealth.

How to catch up on your retirement savings

If you’re looking at your account balance and think you may be behind, there are several ways you can work to boost your retirement savings.

Increase your contributions enough to max out your employer’s match. If your employer offers to match your retirement contributions, it makes sense to increase your contributions enough to get the full match. Say your employer offers a 3% match on retirement contributions. Aiming to save even just 3% of your income will get you up to 6% of your annual income, and you can work toward a larger percentage as your income grows.

Take advantage of catch-up contributions. If you’re 50 or older, you’re eligible to make catch-up contributions to certain retirement accounts. This means you can contribute more than the standard annual limits, giving your accounts an added boost.

For 2026, savers 50 and older with 401(k), 403(b), 457 plans, and the federal government’s Thrift Savings Plan can make catch-up contributions up to $8,000. Those who are 60 to 63 can contribute an additional $11,250 in 2026 in lieu of the $8,000, if your plan allows.

Look for ways to boost your income. Boosting your income gives you the ability to increase your retirement contributions, which, in turn, will increase your retirement savings and help you earn more money in interest on that balance. If there aren’t any current opportunities to increase your income at your current job through a promotion or raise, you might consider taking on a side hustle or exploring higher-paying roles.

The bigger financial picture

“Review your investment strategy, debt, taxes, Social Security strategy, and retirement timeline. Sometimes the solution isn’t one giant change, but finding several smaller opportunities across the entire financial picture,” Seymour said.

“The most important thing is to stop waiting for the ‘perfect’ time to start. The best financial plan is like the best workout plan or diet — it’s the strategy that you actually implement and stick with,” he said.

The record savings rates show workers are committed to their retirement goals despite financial pressures.

But the data also shows many are borrowing from their future selves to get by today.

The path forward is simple in theory but requires discipline in practice: save what you can, capture the employer match, and use catch-up provisions when you’re eligible.

Start now, not later.

Source: finance.yahoo.com

401(k) · catch-up contributions · employer match · Fidelity · financial planning · retirement savings