Episode Transcript
You can contribute more to your 401(k) than ever before. Plus, if you're in a certain age group, there's a new super catch-up option. This is Money Unscripted, a podcast from Fidelity Investments with Fidelity's Kirsten Hunter Peterson and me, Ally Donnelly. We're talking about updates to our workplace retirement savings plans. Kirsten, if I have a 401(k) or 403(b), what are my contribution limits for 2025?
This year you can contribute up to $23,500. That's actually a $500 increase over last year.
$500, right? I hear that, but how do I factor in what that might mean for me and my retirement?
We all have competing financial priorities, so not everyone can contribute the full amount to their retirement each year.
Yeah.
But this increasing limit can be a great motivator for people to save more, or at least think about saving more. Maybe if you get a raise or a promotion or a bonus, think about taking some of that money and putting it towards your future self. Maybe that's just 1% more towards your retirement than you contributed last year. There's so much power in those small amounts, and just that 1% more each year.
Yeah, you say small amounts, but if I'm closer to retirement age, there's an even faster way to catch up, right?
That's exactly right. If you're age 50 or older, you can make what's called a catch-up contribution. That catch-up limit for 2025 is $7,500, which means if you're age 50 or over, you can contribute up to a total of $31,000 to your workplace retirement plan this year.
OK, and then also new this year for workers who are 60 to 63, there are even higher catch-up limits.
If you are between the ages of 60 and 63, you can contribute even more than that regular catch-up limit, something that we're hearing referred to as the "super catch-up."
I like it.
This year's super catch-up limit is $11,250, which means for people age 60 to 63, they can contribute up to a total of $34,750 this year.
Awesome. No small thing, but when we're talking about that max contribution, does your employer match factor in?
No, actually. This is just for your own personal contribution. Most people aren't in a financial position to be able to save that maximum amount. So what I would say is, at the very least, make sure you're saving enough to earn that full match or that full employer contribution. You don't want to leave that money on the table.
Whenever I look at my balance, I'm always like, OK, I want to know how I'm doing. So give us some average 401(k) balances.
Well, the average balance in a 401(k)1 doesn't always tell the full picture. So let's look at it by generation. If we look at Baby Boomers, they have an average balance of $250,900. Gen X has $191,900. Millennials, $66,500, and Gen Z comes in at $13,0002.
So I see the averages, but if I want to make it a little bit more personal to me, how could I think about it?
Well, one guideline that could be helpful is something called 10x3. And what that means is that you should aim to save about 10 times your annual pay by the time you retire. And I know that's a big number, but to break it down a little bit, aim to save about three times your annual pay by the time you turn 40, six times your annual pay by the time you turn 50, eight times your annual pay by 60, and then finally, 10 times, that 10x, by age 67, which is the national retirement age.
But if I'm just not ready to look that big and I just want to go one year at a time, what would you say?
Well, we suggest saving about 15% of your annual pay for retirement each year. And I know that sounds like a lot. It is a lot for a lot of people, but that 15% is inclusive of any contribution, like a match that you might get from your employer.
And what are we seeing?
Well, at Fidelity, we track what these look like day to day and year to year. And we're actually seeing average savings rates increase, especially over the last few years. And today, that average savings rate is just shy of the 15% guideline. So this shows us that people are making saving for retirement a priority and they're really striving to set themselves up for success in their retirement years.
Oh, that's great. We've talked through a lot of numbers, but as folks are leaving this conversation, what do you hope kind of overarching stays in their heads?
Yeah, I would say strive to save as much as you can, but really make sure you're contributing enough to earn that full match or that full employer contribution. You don't want to leave that money on the table. And then also, check in with your retirement savings and the progress that you're making. We go to the doctor once a year, or at least we're all supposed to, it's the same thing with retirement saving, so check in at least once a year to make sure you're on track and make whatever changes might be within your plan.
Excellent. Kirsten, thank you.
Thanks, Ally.
Let's do a quick recap of those 2025 numbers. For 401(k)s and 403(b)s, if you're under 50, it's $23,500. If you're 50 and over, it's $31,000 with that catch-up. And with the new super catch-up option, if you're 60 to 63, it's $34,750.
And a quick note, if you also want to dig into the 2025 contribution and income limits for Roth and traditional IRAs, we have an episode on that, too. We'll see you next time on Money Unscripted. It's your life. Get your money's worth.
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[Footnotes and Disclosures]
1. Source: Fidelity Investments Q3 2024 401(k) data based on 26,400 corporate defined contribution plans and 24.4 million participants as of September 30, 2024. These figures include the advisor-sold market but exclude the tax-exempt market. Excluded from the behavioral statistics are non-qualified defined contribution plans and plans for Fidelity's own employees.
2. Generations as defined by Pew Research: Baby Boomers are individuals born between 1946 – 1964, Gen X are individuals born between 1965-1980, Millennials include individuals born between 1981 – 1996 and Gen Z includes individuals born between 1997 – 2012.
3. Fidelity has developed a series of salary multipliers in order to provide participants with one measure of how their current retirement savings might be compared to potential income needs in retirement. The salary multiplier suggested is based solely on your current age. In developing the series of salary multipliers corresponding to
age, Fidelity assumed age-based asset allocations consistent with the equity glide path of a typical target date retirement fund, a 15% savings rate, a 1.5% constant real wage growth, a retirement age of 67 and a planning age through 93. The replacement annual income target is defined as 45% of pre-retirement annual income and assumes no pension income. This target is based on Consumer Expenditure Survey (BLS), Statistics of Income Tax Stat, IRS tax brackets and Social Security Benefit Calculators. Fidelity developed the salary multipliers through multiple market simulations based on historical market data, assuming poor market conditions to support a 90% confidence level of success. These simulations take into account the volatility that a typical target date asset allocation might experience under different market conditions. Volatility of the stocks, bonds and short-term asset classes is based on the historical annual data from 1926 through the most recent year-end data available from Ibbotson Associates, Inc. Stocks (domestic and foreign) are represented by Ibbotson Associates SBBI S&P 500 Total Return Index, bonds are represented by Ibbotson Associates SBBI U.S. Intermediate Term Government Bonds Total Return Index, and short term are represented by Ibbotson Associates SBBI 30-day U.S. Treasury Bills Total Return Index, respectively. It is not possible to invest directly in an index. All indices include reinvestment of dividends and interest income. All calculations are purely hypothetical, and a suggested salary multiplier is not a guarantee of future results; it does not reflect the return of any particular investment or take into consideration the composition of a participant’s particular account. The salary multiplier is intended only to be one source of information that may help you assess your retirement income needs. Remember, past performance is no guarantee of future results. Performance returns for actual investments will generally be reduced by fees or expenses not reflected in these hypothetical calculations. Returns also will generally be reduced by taxes.
Investing involves risk, including risk of loss.
This information is intended to be educational and is not tailored to the investment needs of any specific investor.
Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. The views and opinions expressed by the Fidelity speaker are his or her own as of the date of the recording and do not necessarily represent the views of Fidelity Investments or its affiliates. Any such views are subject to change at any time based on market or other conditions, and Fidelity disclaims any responsibility to update such views. These views should not be relied on as investment advice and, because investment decisions are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity product. Neither Fidelity nor the Fidelity speaker can be held responsible for any direct or incidental loss incurred by
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