Average 401(k) Account Contributions in 2023

Analysis

401(k) account participants put away an average of $5,993 of their income in 2023

In 2023, individuals with 401(k) accounts saved an average of $5,993 from their income, marking the fifth year in a row the average savings surpassed the $5,500 threshold, despite minimal growth. The $5,993 average contribution in 2023 was a modest increase of $124 from the $5,868 saved on average in 2022. This amount equates to 8.0% of the average participant’s pre-tax income for the year, effectively meaning the average saver set aside approximately $1 out of every $13 they earned.

Is the amount saved significant? Absolutely. While consistent saving over time might be deemed more crucial for long-term 401(k) plan success than fluctuating monthly or yearly contributions, the magnitude of contributions cannot be overlooked. Generally, three key factors contribute to the growth of 401(k) savings: market performance, the impact of loans or early withdrawals, and contributions. Of these, contributions are the aspect most within savers’ control, assuming loans or early withdrawals are only made in exceptional circumstances.

On average, employers contribute an incremental $2,625 on top of employee contributions

In 2023, contributions from employees alone constituted 8.0% of their income. However, when employer contributions are factored in, the average contribution percentage increases by 3.5 percentage points to 11.5% of income. This means employers contributed an additional $2,625 on top of the employees’ $5,993, bringing the total average contribution to $8,618.

Employer contributions are a widespread feature in 401(k) plans. For instance, 96% of the plans managed by Vanguard – representing approximately 5 million individual 401(k) accounts – include employer contributions. At Fidelity, this figure stands at 85%. It’s worth noting, though, that the prevalence of employer contributions may be slightly lower across the entire 401(k) holder population, as these contributions are not mandated by law. 

Larger financial services firms like Fidelity and Vanguard tend to serve bigger, more established companies that are more likely to offer matches and other forms of contributions. Small businesses, on the other hand, may not offer 401(k) plans or choose not to include employer contributions if they do. After all, the primary concerns for small businesses when considering the implementation of a 401(k) program are the affordability of plan administration and the cost of employer contributions.

As a percentage of income, the average annual employee contribution has grown modestly

The average percentage of the income that future retirees contribute to their 401(k) accounts does not change dramatically from year to year. The contributions represented 8.6% of income in 2019, then rose significantly to 8.8% in 2020 during the pandemic, only to fall in 2021 to 7.9%. They inched up to 8.0% of income last year. 

This makes sense, as salaries and wages do not typically rise or fall by large amounts from year to year. And, individuals tend to face similar amounts of expenses in a given year. Only a relatively large salary hike would allow an individual to put away much more of their income into a 401(k).

If this is so, why do 401(k) contributions, as a percentage of income, climb at all from year to year? 

The pandemic, which saw savings behavior grow among Americans, might explain the growth in the proportion of income saved via 401(k) accounts in 2020, but not in other years. 

One answer here is that employer 401(k) programs increasingly encourage gradual escalations in the savings rate to help individuals prepare for retirement. For example, a Vanguard analysis of their roughly 5 million plans found that “participant deferral behavior is increasingly influenced by … automatic escalation default designations,” by which businesses nudge 401(k) participants to ratchet up their contributions each year as they age. 

Another common plan policy is to set relatively high “default” contribution rates — e.g. at 4% or more of income — which also helps keep the average contribution levels higher than they otherwise might be. According to Vanguard’s annual analysis of its more than 5 million accounts, 59% of plans now default employees at a deferral rate of 4% or higher, compared with 35% of plans in 2013.

The average employee contribution continues to grow, but growth has decelerated since the pandemic

During the 2020 pandemic, US household savings experienced a significant surge, with the savings rate reaching unprecedented levels. This increase was driven by several factors, including government stimulus packages and tax incentives that boosted household incomes. Additionally, social distancing measures and disruptions in the supply chain led to reduced consumer spending.

This increase in savings was reflected in 401(k) contributions, with data showing a noticeable impact in 2020 and the following years. In 2020, the average employee contribution to 401(k) plans was $5,627, up from the $5,510 average contribution in 2019. However, the growth rate as a percentage of income began to slow down in subsequent years as incomes rose, falling to 7.9% in 2021 with an average contribution of $5,868.

It’s important to note the inherent “stickiness” in changes to contribution rates. Once adjustments are made, they tend to persist due to the requirement for individuals to actively log into their accounts to modify their contribution levels, whether increasing or decreasing them. Therefore, the significant growth in average contributions observed in 2020 had a lasting impact, with the rates of increase gradually tapering off in the years following the pandemic as the extraordinary conditions that prompted the initial surge began to wane.

Why 401(k) contribution statistics in the media are not always representative

To derive its estimates, Capitalize used IRS, Department of Labor, and Census statistics (see the Methodology, below, for more details). 

The advantage of considering a dataset more representative of the broader US 401(k) population is simple. It is important to consider a broader cross-section of the 401(k) participant population than is seen by financial services firms that work only with their own customer base. 

For instance, one major 401(k) plan administrator noted that its account holders have a median annual income of $82,000, significantly above the broader U.S. median, which is at least $30,000 lower. Capitalize’s approach, by contrast, seeks to capture a more diverse and younger segment of 401(k) account holders to more accurately estimate the average income and annual contributions of all U.S. 401(k) participants.

The methodology sets this study apart from others that rely on data from narrower, single-institution samples. These limited samples often reflect the demographics of long-standing, higher-income participants and may not accurately represent the broader spectrum of U.S. 401(k) account holders. Notably, studies from single institutions don’t claim to represent the entire 401(k) population. However, media reports on these studies frequently omit details about their methodology and limitations. This omission can lead to misconceptions about average 401(k) contributions.

Methodology

Key sources

The following sources were critical to our analysis: 

• The Bureau of Labor Statistics (BLS)¹
• The Internal Revenue Service²
• US Census Bureau median income
• Vanguard’s annual reporting³

Estimate of average employee and employer annual contributions

To estimate the average and median annual contributions to 401(k) plans by American workers, our methodology integrates data from the Internal Revenue Service Statistics of Income Data, Vanguard’s “How America Saves” series, and income statistics from the Bureau of Labor Statistics (BLS). In following the steps detailed below, we develop a methodology built around two insights: The first is that Vanguard’s 401(k) account holders are not representative of the broader 401(k) account holder population in one important respect — they earn a significantly higher income. Fortunately, Vanguard’s reports, uniquely, also include data on how different income bands contribute at different rates to their 401(k) accounts. By pairing BLS data on income as a basis for a broader population estimate, and combining that with Vanguard’s contribution breakdowns, we can surmount the core challenge. We can then more easily develop a formula for estimating what a more representative population would contribute to their retirement via their 401(k) accounts. 

1. The first step is to determine whether Vanguard’s 401(k) account base has an income profile that fits that of the broader US population. Here, we are not trying to arrive at an exact estimate for how much they may differ in terms of income, only to diagnose whether we can safely estimate the contribution behavior of all 401(k) account holders from what Vanguard sees in their 401(k) data. 
2. Vanguard lists the median participant income for its 401(k) account holders. In 2022, this amount was $82,000, while in 2021 it was $78,000. Looking at US Census Bureau median income figures, we can see that the median US income in 2022 was $40,480, and in 2021 it was $40,460. The difference is meaningful.
3. Next, we looked at BLS data to identify a more representative baseline number for the broader US population’s annual income. Here we used a broad-based measure shared quarterly by The Bureau of Labor Statistics (BLS), the Quarterly Census of Employment and Wages, based on the average weekly wage for all workers, in all counties, across all industries. Using this method, we arrive at a 2022 average US income of $69,316.
4. Armed with a broad measure of income in the US, we next developed a formula for estimating the average income of the 401(k) population. Here, we infer that the 401(k) population will have an income higher than that of the US worker population as a whole. We relied on various commercial databases to help us develop a formula that outputs the average salary for what we might call a “full-time salaried worker” in the US. While not exact, this profile is more indicative of the 401(k) participant population, which skews toward the private sector, full-time, salaried jobs. (As opposed to wage workers or part-time workers, for example — though this is starting to change.) 
5. Once we arrive at this estimate, which was $75,196 for 2023, we next have to determine what percentage of income on average this population contributes to their 401(k)s each year. First, we looked at Internal Revenue Services sample statistics through 2018 showing the contributions of 401(k) elective deferrals from taxpayer W2s to arrive at the average 401(k) contribution per taxpayer.
6. Since this data is only current through 2018, we forecasted it forward by taking the average year-over-year changes from 2013 to 2018 and adjusted the actual numbers by backtesting against this approach to arrive at the average 401(k) contribution by employees for 2023. 
7. To estimate the employer contribution, we use a similar process. However, in this instance, we use a different formula. It is based on an adjustment intended to account for the proportion of small- and medium-sized businesses that either do not offer a match or match at lower percentages than the enterprise-size employers that tend to rely on Vanguard’s 401(k) products and services. 
8. In the case of the medians, we follow a similar logic to that used to estimate the average employee contributions but have to account for the fact that the median requires less adjustment. While higher incomes at Vanguard may be enough to meaningfully shift the average annual contribution, the median incomes of our broader 401(k) population and the Vanguard 401(k) account pool are going to have less of a delta between them than the average values, since the mean is a measure that will be more skewed by the right tail of a distribution like income. Thus, median contributions will be closer to Vanguard’s values for the series.
9. We believe our estimates are conservative and well-supported since they start with the Vanguard data derived from 5 million 401(k) participants, and are further tethered to bottom-up statistics reflecting the broader US and 401(k) populations. With this methodology, we create a proxy for activity in millions of 401(k) lower-income accounts that aren’t typically represented in single-source studies. For more on the impact of income, age, and account tenure on 401(k) statistics, see our report, “Average and Median 401(k) Account Balances in 2023.”

Footnotes