Financial security in retirement is important. The average American, according to the U.S. Department of Interior, spends 20 years in retirement. Given the number of years in retirement, most individuals need a financial strategy.
A 401(k) plan can be a helpful tool. Despite the 401(k) plan growth potential, the DOI shows that in 2022, more than a quarter of private industry employees with access to a plan did not contribute.
For most Americans, a 401(k) plan represents their primary savings vehicle so it is essential to maximize its growth potential. The primary goal is to use your 401(k) to double your retirement savings over the next 10 years. Although this may seem like an impossible goal, it is achievable with the right strategies.
Key Takeaways
- GOBankingRates recently conducted a survey polling people about their 401(k) habits and found surprising trends in contributions, understanding and planning.
- Despite the potential of 401(k) plans, 75% of survey participants contribute less than 10% of their paycheck, with most contributing only 3% to 6%. This highlights the need for increased awareness about maximizing contributions.
- Employer contributions can boost your retirement nest egg.
- Compared to younger workers who started earlier, nearly 60% of individuals aged 35-54 began contributing to their 401(k) only after age 31, losing valuable time for compound growth.
- Saving early and maintaining regular contributions increases the likelihood of doubling your 401(k) plan savings.
- The power of compound interest plays an integral role in enhancing the growth of 401(k) retirement funds.
- Over 65% of survey participants have never consulted a financial advisor, indicating a significant gap in professional guidance that could improve 401(k) management and overall retirement planning.
- About 40% of respondents reported only a basic understanding of tax implications related to their 401(k). This suggests a need for greater education on the differences between traditional and Roth 401(k) plans to optimize retirement savings
Maximize Your Contributions
A GOBankingRates survey shows that a majority of individuals across all age groups contributed only 3% to 6% of their paychecks to their 401(k). The survey also shows that no major changes in contribution habits will occur in 2025. Of all that were surveyed, 70% plan to contribute less than 10% to their 401(k) plans. The IRS contribution limit for 2025 is $23,500 and individuals should try to maximize their contributions.
A simple way to double your 401(k) savings is by focusing on the amount you contribute. Here are some tips to maximize your contributions:
- If you receive a raise, bonus or extra money, consider contributing to your 401(k) plan.
- It may be a good idea to reframe your retirement strategy and think about talking to a financial advisor. The survey indicates that more than 65% of all survey participants have never spoken to a financial advisor.
Contribute Early
The same survey shows that only 27% of Americans aged 55-64 have saved between $50,000 and $100,000 in their 401(k). For Americans aged 65 and older, this figure drops to just 20%.
Younger workers aged 21-34 often start contributing to their 401(k) when they begin their first job. However, nearly 77% of individuals aged 35-54 waited until after age 31 to start contributing.
Follow these tips to contribute early to your 401(k):
- Start with a small percentage. Begin contributing a manageable percentage of your income to your 401(k).
- Take advantage of your employment match immediately. If your employer offers a matching contribution, contribute enough to get the full match right away.
- Automate your deductions. Set up automatic deductions from your paycheck to your 401(k). This ensures consistent contributions and eliminates the temptation to spend the money elsewhere.
Contributing early means giving your 401(k) a chance to grow to its fullest potential. You can also benefit from compound interest — the ability to earn interest on your initial investment and the accumulated interest from previous periods. Understanding this principle and regularly contributing can boost your 401(k) balance over time.
Learn How To Manage Your 401(k)
When asked, “How confident are you in the management of your 401(k)?,” less than 42% of participants in the survey in all age groups responded, “Somewhat confident.” The data in general may highlight a widespread lack of understanding about how 401(k) plans function, including investment options, employer match benefits and long-term growth potential.
To manage and potentially double your savings via your 401(k), make it a priority to do the following:
- Review your plan documents regularly. Familiarize yourself with your 401(k) plan’s features, including contribution limits, employer match policies, investment options and fees.
- Educate yourself on investment basics. There are several free online resources, courses or books to build your financial literacy.
- Use employer resources. Speak with your human resources department and also attend any webinars to help you understand your 401(k) plan.
- Consult a financial advisor. It may be helpful to talk to a professional about your 401(k) plan and your overall retirement strategy.
Use Catch-Up Contributions to Your Advantage
If you’re 50 years or older, the IRS allows for catch-up contributions to your 401(k), letting you save more than the standard contribution limit. In 2024 and 2025, a provision allows for an extra $7,500 in contributions beyond the standard cap to help those nearing retirement increase their savings.
Survey results show that almost 85% of respondents believe that in order to “retire rich” you need over $500,000, so those who may have not contributed early can “catch-up” when they are older.
Take Advantage of an Employer Match
It’s wise to regularly review your 401(k) contributions to ensure you’re fully utilizing any employer-matching opportunities. If your employer offers matching contributions, ensure you contribute at least enough to receive the full match. This is essentially free money that can further compound over time.
When planning your yearly 401(k) contributions, keep the current IRS contribution limits in mind to optimize the growth of your savings on a tax-deferred basis. If you qualify, consider making catch-up contributions to accelerate your retirement savings as you get closer to retirement.
Understand Tax Implications of Your 401(k) Plan
Taxes have multiple nuances. The survey suggests that most respondents in all age groups had somewhat of an understanding of the tax implications of their current 401(k) plan.
Contributions to a traditional 401(k) are made with pre-tax dollars, which lowers your taxable income in the year you contribute. However, you’ll need to pay taxes on withdrawals during retirement, as those distributions are considered taxable income.
Consider a Roth 401(k)
If your employer offers a Roth 401(k) option, contributions are made with after-tax dollars, meaning you won’t get a tax deduction now. However, both your contributions and investment earnings can be withdrawn tax-free in retirement, provided certain conditions are met. This can be helpful if you expect to be in a higher tax bracket in retirement.
Monitor and Rebalance Regularly
Over time, market fluctuations can cause your initial asset allocation to shift, potentially exposing you to more risk or less growth potential than intended. Regularly monitoring and rebalancing your portfolio helps maintain your desired level of risk and can contribute to better long-term returns.
Rebalancing means adjusting your portfolio by selling investments that have grown too large and buying more of those that have decreased in value. This helps manage risk and can potentially boost your returns.
Final Take
Achieving financial security in retirement requires proactive planning and disciplined saving, and a 401(k) is one of the most powerful tools to achieve this goal.
While many Americans underutilize their 401(k) plans by contributing less than 10% of their income, strategies such as maximizing contributions, starting early and taking advantage of employer matches can significantly boost savings.
Leveraging the power of compound interest, understanding tax implications and consulting a financial advisor can further optimize 401(k) growth. With these approaches, doubling your 401(k) savings in 10 years becomes an achievable milestone, paving the way for a more secure and comfortable retirement.
GOBankingRates surveyed 1,000, working Americans aged 21 or older who were employed and have been in their current role for at least one full year, between Nov. 16 and Nov. 22, 2024. They were asked fourteen different questions: (1) How much money do you currently have in your 401(k)?; (2) How much retirement savings do you believe the typical “middle class” American has by 65 years old?; (3) How much savings do you believe Americans will need in order to retire rich in 2025?; (4) How much do you expect to have in your 401(k) by the time you retire?; (5) What is the likelihood that you believe you can retire with more than $1,000,000 in retirement savings?; (6) How much did you contribute to your 401(k) in 2024?; (7) How much do you plan to contribute to your 401(k) in 2025?; (8) How much do you believe you need to contribute to your 401(k) in order to retire as a millionaire?; (9) Do you tend to change retirement contributions to your 401(k) during economic downtimes?; (10) Have you decreased your contributions to your 401(k) at any point within the past year?; (11) At what age did you first begin investing in your 401(k)?; (12) Have you ever consulted a financial advisor about your retirement?; (13) How well do you understand the tax implications of your current 401(k) plan?; and (14) How confident are you in your management of your 401(k)?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.