Despite the coronavirus pandemic and resulting economic strain, Americans continue to save for retirement at a solid rate. A new report from Fidelity shows the average 401(k) participant contributed about $7,200 over the 12-month period ending September 30. Combined with the average employer contribution of $4,000 on top of that, and the total annual contribution adds up to about 13.5% of income. The typical target for retirement savings is about 15% of your annual income.
The savings numbers are especially solid, considering many companies have halted matching 401(k) contributions due to the pandemic, while many employees have dipped into retirement savings to deal with economic hardships this year. But many others still aren't saving at all. "A little over a quarter---27-percent---of those in the study do not participate in their company's 401(k) even if one is offered," says KTRH Money Man Pat Shinn with Heritage Asset Advisors. "And I think that's unfortunate."
As for how much you can contribute to a 401(k), that depends on your age. "The maximum you can defer is $19,500 out of your salary per year, and if you're age 50 or above you can put in an additional $6,500," says Shinn.
To get to that maximum contribution, Shinn recommends what he calls the one percent solution. "The one percent is every year, you simply raise the amount of salary deferral by one percent," he says.
Whatever you're putting in, the important thing is to keep contributing something to your retirement, even during the pandemic. "Some companies have pulled their 401(k) matching contribution, but that does not mean you should stop contributing," says Shinn. "You definitely want to continue to fund it."