Raising Savings by Greg Spears

When I was working full-time, I always saved the maximum to my 401(k). Before my employers had a 401(k) plan, in the early 1980s, I saved the maximum to an IRA—a princely $2,000. Pretty soon I felt rich. I had $40,000 saved.

For this reason, I always pay attention to changes in plan savings limits. And there are higher savings limits for 401(k) plans in 2025, plus a new “super catch-up” category. For those who are interested, here are the figures:

Thanks to an inflation adjustment, the maximum workers can contribute to a 401(k) plan increases by $500 to $23,500 in 2025. This same maximum applies to 403(b) and 457 plans. As always, if your employer allows, contributions can be made either pre-tax or Roth, or a combination of both.

New in 2025 is a super catch-up category, allowing workers aged 60 through 63 to mount a savings charge before retiring. They can save $11,250 in catch-up contributions, or $34,750 total, to their 401(k) next year. Workers ages 50 to 59 and then 64 and older can contribute an extra $7,500 in a catch-up contribution in 2025, or $31,000 total.

If you aim to max out, it pays to raise your deferral rate at the start of the year to spread your contributions over all pay periods. Still, with the new lofty savings limits, most workers don’t make enough to ring the top bell. Roughly one worker in seven made a catch-up contribution in 2023; fewer still saved the maximum to the 401(k)

In 2023, 14% of workers contributed the maximum to their retirement plan, according to Vanguard’s How America Saves 2024, which analyzes the behaviors of some 5 million plan participants. As you might expect, these super savers were higher-wage employees, the majority (53%) earning $150,000 or more. Fewer than 6% of workers making under $100,000 contributed the maximum.

And 15% of eligible participants made catch-up contributions in 2023. Here again, most earned $150,000 or more (55%). Among workers earning less than $100,000, 7% made a catch-up contribution.

The average participant at Vanguard earned $82,000 in 2023 and saved a respectable 11.7% of pay to the 401(k), including employer contributions. The average 401(k) plan balance was $134,128. Assuming a 4% withdrawal rate, that savings pot could provide roughly $450 a month in retirement. Enough to pay the utility bills, perhaps, but not a mortgage.

On the plus side, most workers have more than one retirement savings pot: Social Security, a pension if they’re lucky, plus other IRAs or 401(k)s picked up along the way. In addition, the average Vanguard plan participant is 43, meaning they have decades to save before retiring.

Which brings me to my favorite savings advice. If you’re not contributing the maximum, raise your savings rate by 1% of pay in the New Year. Then do it again, year after year. When I did, I barely noticed any change in my take-home pay. Yet I was more financially secure by the end of my career. As always, your results may differ.