Fidelity Survey: Workers Increasing 401(k) Contributions But More Is Still Needed

Last Updated Jul 14, 2011 2:48 PM EDT

Today, Fidelity Investments released a survey showing that one in 10 workers increased their contributions to their 401k plans in 2011 -- the highest level since Fidelity started tracking this number in 2006. The company also reported that more than half of all workers -- 53 percent -- increased their contributions in the past five years, in spite of economic uncertainty and market volatility.

And there's more good news: The survey found that 37 percent of respondents are also using an IRA outside of the workplace to supplement their savings. This number is even higher (44 percent) for age 55+ pre-retirees.

The survey also verified the importance of employer-provided retirement savings plans -- more than half of respondents said they wouldn't be saving for retirement if it wasn't for their 401k plan. This belies the hit on employer-sponsored plans that The Wall Street Journal delivered earlier this week.

There was one negative that the survey reported: Almost one in four workers -- 23 percent of respondents -- reported taking out a loan against their 401k account. Overall, however, the news was good, and it indicates that Americans are making progress toward reasonable retirement saving goals. But we're not yet where we need to be.

To have some level of financial security in retirement, workers in their 30s and 40s should be saving 10 to 15 percent of their pay; this is well beyond the average contribution rate of 7 to 8 percent of pay for this age group, as reported by Fidelity Investments. And workers in their 50s and 60s will need at least $500,000 in their 401(k) balances to have a traditional retirement, well short of the numbers for these workers reported in the 2011 Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI). In this survey, only 19 percent of workers age 55 and over reported retirement savings of $250,000 or more.

So why can't workers save more? By far, the most commonly reported reason is the need for extra money to meet today's spending needs. While I understand that workers are strapped, I also believe that many people could find additional savings if they made it a priority and got creative with their spending habits. In fact, the EBRI study mentioned above reported that 68 percent of respondents said it was reasonably possible that they could save an additional $25 per week -- which adds up to a total of $1,300 more per year. Saving just this extra amount can make a significant difference, compounded over many years.

Now mind you, I'm not wagging my finger at people for not saving enough. I'm just pointing out that the spending decisions they make today have consequences for their retirement tomorrow. In essence, they're choosing to live better today, with the consequence that they might really be strapped in their later years and will be forced to continue working into their 60s or mid 70s. And the legacy that they might leave their children could be that they have to move in with them!

I hope this thought adds to people's motivation to look for smarter ways to manage their finances. I believe in the creativity and resilience of Americans to solve tough challenges, once they're fully motivated.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.