Saving consistently is among the more difficult financial undertakings most people will ever try. So much gets in the way—income setbacks, unexpected expenses, impulse purchases. In the early years, a steady savings plan may even seem futile as your gains are slight and your sacrifices are great.
Yet no path to retirement security is more certain. Among consistent savers, defined as those who had an active 401(k) plan between 2007 and 2013, the average balance started at $79,882 and swelled to $148,399, growing 10.9% a year, a new study by EBRI finds. The median balance of consistent savers was $31,224 and rose to $75,359, growing 15.8% a year.
By contrast, the typical 401(k) plan saver stops and starts from year to year. They may take loans or early distributions. Among the 26.4 million plan participants in the Employee Benefit Research Institute’s database at the end of 2013, only 4.2 million had saved consistently since 2007.
Because of that lack of consistency, the typical saver barely stayed afloat. The average saver had a 401(k) balance of $65,454 in 2007, which grew to just $72,383 in 2013. Not much to show for such a lengthy spell. And it gets worse, the median saver—half have more and half have less—actually lost ground. The median balance in 2007 was $18,942. By 2013 it had dropped modestly to $18,433.
There's an even bigger bonus to consistency: 401(k) balances start to balloon in the latter part of your career, thanks to the effects of compounding. For those in the 40s who had been saving more than 20 years, the average balance stood at $183,788; for those in their 50s with 30 years tenure, the average balance climbed to nearly $295,747.
These are not investment returns. The balances include the effects of continuing contributions as well as any loans and distributions. They are also somewhat skewed in that the consistent savers had been at it at least seven years, while many in the 2013 database may have been new to the plan.
But the message is clear: those who stick to a plan year in and year out get ahead in the long run. By continuing to make contributions in the roughest years of the financial crisis, consistent savers bought stocks while they were down and launched off the bottom as the market turned higher. Those automated contributions helped many beginning savers hang on through the recent market downturn, since they didn't have to make a conscious choice to buy when stocks were plunging.
Consistent savers and the typical plan participant have eerily similar investment allocations, EBRI found. So the better results of consistent savers have little to do with risk. In both segments, plan participants are roughly two-thirds invested in stocks, a figure that has declined only a bit since before the recession.
One reason for the relatively high exposure to stocks across the board is the growth of target-date mutual funds, which for many savers, especially younger ones, may be the only fund they hold in their 401(k) plan. Among consistent savers, 27.1% held target-date funds in 2007, compared with 25% of the full database. By 2013, consistent savers held 30.4% in target-date funds while the full database held 41.2%.
Target-date funds, along with auto enrollment, have done wonders to get savers into an appropriate level of stocks for their age. That part can now be put on autopilot. But consistent saving is an important aspect of retirement security, and while it too can be put on autopilot it may be a tougher decision. You also need to contribute enough and avoid plan loans and early distributions. will show how much you might end up with at your current savings rate.)
As a rule, always contribute enough to get the full company match. Sign up for auto escalation of contributions and stay with it until you are putting away 15% of pay; over time, that savings level could even get you to a $1 million retirement. For a jump-start, consider putting all or some of your next raise or bonus towards savings. And don’t panic. When markets fall, consistent savers get ahead by buying stocks while they are on sale.