How Much of Your Salary Goes Into Your 401(k) – Are You Meeting the New 6% Benchmark?

Workers are now dedicating more of their income to retirement savings, and technology plays a significant role in this shift.

**Automatic Enrollment**
Many employers are adopting automatic 401(k) enrollment with a higher default contribution rate, starting at 6% or more. This is a significant increase compared to previous years. According to Vanguard Group, about a third of companies using auto-enrollment now start workers at this higher rate, which is double the number from a decade ago. This higher rate helps employees take better advantage of matching employer contributions.

**Younger Worker Numbers**
Previously, many employers set the default rate at around 3%, fearing that higher rates would lead to employees opting out. However, it turns out that most employees do not opt out and instead see their savings grow. This is a change from past decades when a 6% default rate was considered too burdensome for younger workers. Today, many Gen Z and millennial employees appreciate the convenience of automatic enrollment and start saving for retirement from their first day on the job.

**Total Savings**
Vanguard reports that about 60% of companies now automatically enroll new hires, leading to a 401(k) participation rate of 82% among eligible workers, up from 66% in 2007. The new standard rate aligns more closely with financial advisors’ recommendations, which suggest saving 12% to 15% of annual income for a secure retirement.