Why only 14% of workers achieve this 401(k) goal and why you should aim for it

The reality of the US retirement system, which is that you are largely responsible for ensuring your own retirement outside of Social Security, is that most workers are chronically undersaving. Just over a third of nonretirees said they believe their retirement savings plan is on track in 2023, according to a Federal Reserve survey.

However, many workers save and invest diligently for retirement. Among participants with defined contribution (DC) plans with Vanguard as record custodian, an estimated 14% contributed the annual maximum employee elective deferrals in 2024. Defined contribution plans include 401(k) and 403(b).

The annual maximum, which doesn’t include employer-made contributions, is $23,500, but if you’re over 49, it’s $31,000, and can reach $34,750 for older workers based on changes resulting from the SECURE Act 2.0.

While saving less than the maximum doesn’t necessarily mean you’re falling short in retirement planning, achieving this goal can help you achieve a more secure retirement, especially if you have limited years to save within a DC plan.

“Ultimately, the amount 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 out if you can,” Meg K. said. Wheeler, CPA, is a financial educator and founder of the Fair Money Project.

Why you should aim for the maximum

As might be expected, 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 earned more than $150,000 a year reached the limit, versus just 2% of those earning $75,000 to $99,999.

However, even if you have a modest income, you can strive to max out your 401(k) account contributions to take advantage of benefits like employer matching or compound interest. The faster you can save your money, the more time you have to let the compounder work its magic.

Let’s say you are 25 years old and you save approximately the maximum for the next five years until you are 30 years old. For simplicity, let’s assume the account value is $100,000 at that point. If you never invested another dollar and let the account grow at an average rate of return of 10%, you would have more than $2.8 million by age 65.

By comparison, let’s say 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 continue to invest $1,000 a month until age 65, you will end up losing more than half a million dollars.

You also never know what will happen in your career. Maybe you’ll go to work at a startup that doesn’t offer a retirement plan, for example. In this case, you may want to add more to your 401(k). This is especially true considering that contribution limits are much higher in DC plans than in many other account types. For example, individual retirement accounts (IRAs) have an annual contribution limit of $7,000 in 2025.

What’s more, maxing out can help if you’ve been neglecting your retirement savings and need to make up for it.

“The reality is that most people have not saved enough for retirement, and for Americans, with uncertainty about the future availability of Social Security funds, saving as much as possible for retirement is not a bad place to start,” Wheeler said.

How to increase your retirement contributions

Saving tens of thousands of dollars a year is no easy feat. It is clear to see from the minority of DC plan participants who have maxed out their accounts. However, there are ways to at least get close to this goal with a more modest income.

1. Be intentional about your cash flow“Expenses have a way of creeping up, so building strong habits around budgeting and regularly reviewing your spending can make a big difference,” said Amanda De Cesare, CFP and co-founder of Tara Wealth. “Small adjustments — such as redirecting a raise or bonus or even cutting back on recurring expenses — add up over time,” she said.
2. Make the most of your employer-sponsored plan: Many employers match your contributions up to a certain limit, so try to at least meet that limit. You can also sign up for automatic contributions to help you stay on track with steady savings. This has the advantage of removing some of the emotion from retirement planning.

Be realistic about what works for your situation. “The key is balance,” DeCesare said. Consider other financial goals such as building an emergency fund, or having a mix of traditional and Roth retirement accounts. “A comprehensive approach to saving can provide tax efficiency and financial flexibility, now and in retirement,” she said.