Higher 2024 retirement plan contribution limits allow for more long-term savings

Saving enough each year for retirement is the most important thing you can do towards becoming retirement ready, alongside investing consistent with your life stage. Not everyone needs to save the full amount allowed to be saved into retirement accounts, but some should, and most people need to increase their savings, to get on track.

Pay yourself first by saving an appropriate amount into your retirement account, and avoid being one of many people who are unable to retire due to under-saving.

Retirement account savings limits can increase yearly, giving you an opportunity to save more. In 2024, the IRS raised contribution limits for 401(k), 403(b) and 457 plan contributions by $500 vs. the 2023 limits.

 2024 Contribution limits

• 401(k), 403(b), 457 plan employee deferral – $23,000
• Catch-up contributions (age 50+) – $7,500 (this is in addition to the $23,000 above)
• Defined contribution total dollar limit – $69,000 (this is the total across all sources, i.e. employee contributions and employer contributions)
• Highly compensated employee limit – $155,000
• IRA contributions – $7,000
• Catch-up IRA contributions (age 50+) – $1,000

For more details, visit the IRS website.

Younger employees are not saving enough, early enough

Research shows that during 2022, only 15% of participants saved the maximum allowed amount for that year. And, retirement plan participation rates were “lowest for employees younger than 25. 62% of younger workers elected to contribute to their employer’s plan, while more than 8 in 10 employees between ages 35 and 64 made such deferrals.”*

Increase your savings through automatic savings increases

Some plans offer an automatic or optional feature to gradually and automatically increase your savings rate over a number of years. If you aren’t able to make a big jump in savings levels now into your retirement plan, automatically increasing your savings each year by 1-2% or more, can lead to a big impact over time. If automatic-escalation is not already in place for you, contact the customer service group of your retirement plan provider to ask them how to turn it on.

Save at levels consistent with your retirement goals

Deciding how much to increase your savings levels is easier if you have clear retirement goals, as well as other goals such as saving for a down payment or creating an emergency savings account. However, not everyone is clear yet about those goals. Contributing up to the allowable limits may not always be the answer, so here are a few good general rules of thumb to get you started:

1. Always save enough to capture your full company match, if a match is offered. A match is free money, and you can’t get that opportunity back after it passes.
2. If your retirement goals aren’t clear yet, simply stretch to save as much as you can now, and then adjust that savings level up or down as your retirement goals become clearer.
3. Generally, people should save at least 10% of their income into their retirement plan yearly, but that may not be enough if you didn’t start saving at an early age, or if you plan to retire early, or live longer than average, or if you have high spending goals during retirement.
4. Consider the 50/30/20 Needs/Wants/Savings budgeting rule, which suggests spending 50% on needs, 30% on wants and 20% on savings. Within savings, a portion could be the 10% retirement savings suggested above, plus a combination of savings towards a down payment, and/or emergency savings, and/or other needs.

The risk of delaying retirement savings

Many workers delay retirement saving and then save too little. Delaying savings is a risk for many reasons, especially as you start to earn more. The earlier you start and the more you save, the greater the power of compounded interest. If you wait to save, time works against you, and much larger savings levels will be required later in life to get to the same retirement nest-egg goal… or you may have to work longer and/or spend less in retirement. If you aren’t convinced, ask this simple question to older workers at your company: “Do you wish you had started saving more and earlier in to the retirement plan?” The vast majority of people will say yes, and will encourage you to get started saving more and sooner.

*How America Saves, a report by Vanguard.