Some of the youngest employees in the workforce may not be saving enough to retire comfortably.

According to a new report from Vanguard, an investment firm that represents more than 30 million investors, Millennials and Gen Z employees under the age of 35 currently have an average of $37,211 and $6,264. , respectively, saved in their 401(k) retirement plans.

However, with an average total savings rate of 10.5% for workers aged 25 to 34 and 8% for workers under 25, these employees are probably not saving enough to meet their retirement goals. retirement.

“We believe participants should achieve a total savings rate of 12% to 15%,” says John James, managing director of Vanguard’s Institutional Investors Group.

Here are the average and median 401(k) account balances by age in 2021, for Vanguard retirement plans:

Average balances are much higher because they represent the sum of all Vanguard account balances divided by the total number of accounts, so a few outliers can skew the results.

The median, on the other hand, is the midpoint, so half of the account balances are higher and half lower. For this reason, the median is considered more representative of the amount most people have saved in their 401(k) accounts.

Many factors affect employee pension contributions, including an employee’s income, age, and length of service. Older employees with more experience tend to have higher account balances than younger employees who are just starting their careers.

Some good news: Pension contributions hit an all-time high last year, according to Vanguard. The investment company attributes this trend to the increasing use of automated features, such as automatic registration and automatic increase in annual contributions.

Although the “set and forget” option has significantly increased employee pension contributions, Vanguard still believes “we can do more to help members achieve financial well-being – having the certainty that spending needs to term will not prevent them from achieving their long-term retirement goals.”

For those feeling behind on saving for retirement, it’s not too late.

Here are three tips for increasing your contributions, from Nilay Gandhi, Senior Wealth Advisor at Vanguard.

1. Don’t focus on your account balance

“While it can be tempting to focus on your account balance, account balances are heavily influenced by market performance,” says Gandhi. “If you focus too much on your account balance, you may be tempted to react to short-term volatility at the expense of your long-term financial goals.”

Instead, remember that “market volatility is a normal and expected event.” Gandhi encourages investors to focus on what they can control, such as their current savings rates, investment choices, spending, and long-term goals.

2. Give what you can

The amount of money you can save is “one of the most influential factors in helping you achieve your long-term financial goals,” says Gandhi.

However, Gandhi acknowledges that it can seem daunting for employees just starting out in their careers to save the recommended 12-15% of their salary.

It’s OK to start with what you can afford. But, “make sure you save at least enough to get your employer’s full match,” says Gandhi. From there, “increase your savings rate by 1% to 2% each year until you reach the target savings rate of 12% to 15%.”

3. Consider a Roth IRA

If you’re looking for other ways to save, Gandhi suggests opening a Roth IRA, which is another type of tax-efficient retirement account.

One of the main differences between a 401(k) and a Roth IRA is how they are taxed. With a 401(k), contributions are deducted from your salary and deposited before your income is taxed. When you withdraw the money in retirement, those withdrawals are taxed at your current tax rate.

With a Roth IRA, you invest money that has already been taxed. Although you cannot deduct these contributions from your current taxable income, withdrawals made after you reach age 59.5 are not taxed.

For 2022, most investors can contribute up to $6,000.

But be aware of income limits, says Gandhi. Single filers can only contribute to a Roth IRA if they earn less than $129,000, and the limit is $204,000 for married couples filing jointly.

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