Summary of Research Results
The research looked at 401(k) contribution rates by age cohort for a population of 10,000 households. The population was then divided into three saver profiles: Low Savers, Middle Savers and High Savers. The characteristics of each profile was defined as follows:

  • Low Savers – At most ages, they save about 2% of their salary, slowly raising the amount to 3% as they approach retirement.
  • Middle Savers – At younger ages, they save about 5% of their salary, slowly raising the amount to about 6% as they approach retirement.
  • High Savers – At younger ages, they save about 9% of their salary, and they continue to increase their contribution to 15% as they approach retirement.

The difference between the savings rates of the Low Savers and Middle Savers stays constant as the savers age at about 3 percentage points (ppts). The spread between the High Savers and the Middle Savers at younger ages is also about 3 ppts and gradually increases to about 8 ppts near retirement.

The following chart from the JPMAM release illustrates this savings pattern:

The implication of the differences in savings rates on asset accumulation should be obvious. That is, at every age level, lower savings will result in lower account balances. At age 60, the median account balance as a multiple of salary was 1x, 2x and 4x, respectively, for Low, Middle and High Savers.

The researchers also looked at salary levels by saver type to determine if this might be impacting the participant’s ability to save more. The data showed that High Savers had a median salary higher than the Middle and Low savers. This seems logical. However, there was only a very small difference between the median salary of the Middle and Low Savers. For example, at age 50, both Middle and Low Savers earned a median salary of about $50,000/year. What then accounts for the savings difference, if not income differences?

In investigation of this, the study examined spending behavior. The data showed that the Low Savers spend about 2% to 3% more of their salary up to age 45. The bulk of this spending differential is related to housing, transportation, and food and beverage. Based on their analysis, the researchers concluded that this spending differential was the main reason between the saving rates of Low and Middle Savers.

The research has broadened the horizon on retirement savings. It suggests that one must consider spending patterns, not just savings, when it comes to understanding the full financial picture. In an upcoming article, “Spending Behavior May Be Key to Retirement Savings; Key Observations,” we will explore how plan sponsors can use these findings to help plan participants increase their savings.


If you have any questions or comments on employee benefit plan matters, please call or email Rich Baker. He can be reached at 415.869.5578 or rbaker@sldcpa.com.