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Money Guy Show
401k Savings Rates Are Going Up (What's Going On?!)
Aug 5, 2024
Discover why 401(k) savings rates are hitting record highs, driven by tax law changes and employer practices like automatic enrollment. Learn how setting a solid default contribution rate can enhance employee savings without a second thought. Uncover tips on maximizing contributions for a secure financial future, even in volatile markets. Delve into the smart strategies for major purchases, emphasizing smart car buying rules that prioritize retirement over immediate gratification. Plus, explore the journey to financial independence for young adults!
34:10
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Quick takeaways
- The rise in 401(k) savings rates is largely due to automatic enrollment policies, significantly reducing opt-out rates and enhancing savings discipline.
- Despite increased contribution rates, many employees still fall short of adequate retirement savings, emphasizing the need for higher individual saving goals and financial literacy.
Deep dives
Increasing 401(k) Contribution Rates
Recent data indicates a rise in 401(k) contribution rates, now averaging 11.7% at Vanguard. This increase is partially attributed to structural changes in tax laws that have encouraged employers to adopt higher automatic enrollment percentages. Specifically, many companies now implement a 6% auto-enrollment rate, prompting employees to save more without requiring them to take explicit action. While this trend is positive, it is essential to recognize that it doesn't necessarily reflect a shift in individual financial awareness or personal initiative.
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