Why Just 14% of Workers Hit This 401(k) Milestone and How to Make It Your Target

Key Takeaways 49% of plan participants who made more than $150,000 annually hit the max, versus just 2% of those earning $75,000 to $99,999.Hispanolistic / Getty Images Only 14% of participants contributed the annual maximum in Vanguard-run defined contribution retirement plans, such as 401(k)s, in 2024. High-income earners are more likely to max out their 401(k)s, but even if you have a modest income, you can reach this goal. The power of compounding returns means you have a strong incentive to save as much as possible, as soon as possible. The reality of the U.S. retirement system is that most workers chronically under-save. Just over one-third of non-retirees said they thought their retirement savings plan was on track in 2023, according to a Federal Reserve survey. Still, many workers are diligently saving and investing for retirement. Among participants with defined contribution (DC) plans with Vanguard as the recordkeeper, an estimated 14% contributed the annual maximum for employee elective deferrals in 2024. Defined contribution plans include 401(k)s and 403(b)s. The annual maximum, which does not include contributions your employer makes, is $23,500 but if you’re older than 49, it’s $31,000, and it can be as much as $34,750 for older workers based on changes resulting from the SECURE 2.0 Act . While saving less than the maximum doesn't mean you're necessarily falling short on retirement planning, meeting this goal could help you achieve a more secure retirement , especially if you have limited years to save within a DC plan. "Ultimately, how much someone should contribute depends on their unique financial situation and retirement goals , but in general, if your only source of retirement savings is your retirement plan, you should aim to max it out if you can," said Meg K. Wheeler, CPA, financial educator and founder of The Equitable Money Project. Why You Should Aim for the Max As you would expect, higher earners can typically more easily contribute the maximum amount to their retirement savings plans. For example, 49% of plan participants in the Vanguard study who made more than $150,000 annually hit the max, versus just 2% of those earning $75,000 to $99,999. Still, even if you have a modest income, you can strive to max out your 401(k) account contributions to take advantage of benefits such as matching employer funds or compound interest . The sooner you can put money away, the more time you have to let compounding work its magic. Suppose you're 25 and save around the max for the next five years until age 30. For simplicity's sake, let's say the account has a $100,000 value at that point. If you never put in another dollar and let the account grow at an average return of 10%, you'd have over $2.8 million by age 65. In comparison, suppose you just started saving for retirement at age 30 and don't reach $100,000 in your 401(k) until age 40. Even if you then continued to invest $1,000 every month until age 65, you'd end...

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