Even your boss knows you could do a better job of saving for retirement.
Employees have been asking their employers to help them stash more money in their 401(k) savings plans, seeking more automated savings features.
Companies are responding by boosting the amount employees can defer when they are automatically signed up for a 401(k), according to a report from T. Rowe Price. The asset manager studied 662 retirement plans with more than 1.6 million participants.
Twenty-nine percent of the employers were automatically enrolling workers into the retirement plan at a savings rate of 6 percent of salary as of the end of 2015, according to the report. That's up from about 17 percent of 401(k) plans in 2011.
See below for more detail on default contributions in 2015.
Thirty-eight percent of employers automatically enrolled workers at a rate of 3 percent of salary in 2015, down from nearly 50 percent of employers in 2011, according to T. Rowe Price.
There are two factors behind employers' decision to boost the default contribution to 6 percent, said Aimee DeCamillo, head of T. Rowe Price Retirement Plan Services. "Coming from the data we've seen over the last several years, 3 percent isn't enough," she said.
Indeed, retirement plans with auto enrollment tend to have as many as 9 out of 10 employees stay in the 401(k), according to T. Rowe Price.
A history of inadequacy
The automatic enrollment rate of 3 percent has been the standard savings rate in 401(k) plans for about the last 10 years.
The Pension Protection Act of 2006 established standards for a minimum savings amount — 3 percent — for plans that automatically enroll participants.
Per the IRS' rule on these plans, this default deferral rate is supposed to gradually increase each year an employee is enrolled, all the way up to 6 percent of salary.
Employees shouldn't stop there, said DeCamillo. "We'd like to see a 6 percent rate and an automatic increase to get you to a 10 percent contribution rate, plus an employer match," she said.
Getting there isn't easy. For instance, employees who are auto-enrolled into plans at a low rate may succumb to inertia and be less inclined to increase their deferrals over time.
Another consideration for employees is the question of whether aggressive 401(k) contributions will cut into their cash flow.
More than one-third of workers fretted about retiring on time, and more than half worried that they didn't have enough emergency cash saved, according to a PricewaterhouseCoopers study in April. A quarter of people surveyed were concerned that they wouldn't be able to pay their monthly bills.
Employers have tried to address workers' cash flow worries by kicking off financial wellness programs at the workplace.
What's the magic number?
Research from T. Rowe Price recommends that employees save at least 15 percent of their salary in their retirement plan, five times the default 3 percent rate.
Savers could reach that rate over a period of five years, starting off with a 5 percent deferral and raising it by 2 percentage points each year, according to the asset manager.
In practice, it can be a stretch for lower-income workers to set aside 15 percent of their salary for their 401(k).
"Imagine being 30, having six kids and making $26,000 a year," said George Fraser, managing director of Retirement Benefits Group, a retirement plan consultancy. "There are a lot of people like that."
Those employees need more realistic savings goals and a less painful process to get there, he said. For instance, employers could start workers at a 3 percent deferral and escalate it by 2 percentage points annually, with the goal of reaching 6 percent in two years.
"I think it's possible for everyone to get to 6 percent, but it has to be a soft landing and soft escalation," said Fraser. "This way, it's not like, 'Wow, I have 6 percent less of my salary, and now I can't take the kids to get pizza.'"