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Here’s something no one tells you when you have kids…

You get to relive all your childhood illnesses, like severe strep throat. Fun.

But as I was sitting miserably in bed this week — accompanied by a neon orange bottle of amoxicillin and a warm mug of peppermint tea — I had time to do something I so rarely get to do now that I have twin toddlers…

I got to leisurely read The Wall Street Journal. On a weekday!

I’ve been a subscriber to WSJ since I was a fresh college student majoring in the now lost art of print journalism. (Fun story: Apple released its original iPad the year I graduated; I remember one of our professors foregoing his lecture one day to review its features and wrapped up the time saying he hoped we all did well in our multimedia classes.) Even now, there are still a few newspapers and magazines I simply prefer to read in print.

Anyway, so it’s me, amoxicillin, peppermint tea, and my newspaper all loafing around in bed, when this headline catches my eye: Saving 6% Is New Standard for 401(k) Plans.

In it, the reporter details how a growing number of companies have been quietly increasing the default savings rates they use when they auto-enroll employees into the 401(k) plan, all the way up to 6% from a previous standard of 2% or 3%.

That might seem like a small tweak at first glance, but it could actually have big implications for your financial future. Here’s what you need to know — and how you can make sure you’re getting the most out of this change.

Moving the Needle on Your Retirement Savings

Experts say we should be saving 10% to 15% of our pre-tax income annually to retire comfortably. By starting everyone off at 6%, these companies are giving their employees a major head start toward that goal.

And let’s face it, we could all use a little nudge in the right direction, especially when it comes to something as easy to procrastinate on as retirement savings.

But there’s even more to it than that because of how it affects your “employer match.”

You see, a whopping 98% of companies that offer a 401(k) plan also offer an employer match, which is when the company makes matching contributions to their employees’ 401(k) plans, usually up to a certain percentage of salary. In other words, when you put $1,000 into your 401(k) plan, your company puts another $1,000 into your plan — out of their pocket.

It’s legitimately free money. And for 2024, the average employer will match contributions up to 4% to 6% of an employee’s salary, which means they’ll keep matching your contributions until you’ve paid an amount equal to that percent of your pre-tax salary.

By cranking up the default savings rate, companies have made it more likely that their employees will get the maximum employer match every year, which can mean big things for their retirement savings. The best way to show you is breaking down how this new 6% standard compares to the old 2% to 3% with a hypothetical scenario:

Imagine you’re making $50,000 a year, and your employer offers a 401(k) match up to 6% of employee salary. Under the old 3% default, you’d contribute $1,500 to your 401(k), and your employee would match those contributions, for another $1,500 added to your account. (Unfortunately, the default 3% contribution rate is only half of the employer match cap, so you end up leaving an additional $1,500 of employer contributions on the table.)

At the end of the year, your contributions plus your employer’s match add up to $3,000, or 6% of your $50,000 salary. Not bad, but far short of the recommended 10% to 15% you need to save to have a comfortable retirement.

Now, let’s look at the same scenario under the new 6% default rate. With a 6% contribution rate, you’re putting $3,000 into your 401(k). And because your employer matches your contributions up to 6% of your salary, that’s another $3,000 added to your account each year.

In total, your contributions plus your employer’s match add up to $6,000, or 12% of your $50,000 salary, right within the recommended range.

Even if your employer only matches 50% of your contributions, this still results in you putting away 9% of your salary into your 401(k), which is just shy of what experts recommend. (And you’re not missing out on any of that free money.)

All in all, this is a fantastic change, especially considering a recent Federal Reserve survey that showed only 31% of people feel they’re on track to retire comfortably. If this small shift can help more people hit their retirement benchmarks, that’s a win in my book.

How You Can Take Advantage of This Trend

If your company provides a 401(k) plan and you’ve recently started a new job, there’s a decent chance you’ve already been opted into this retirement-friendly contribution rate. According to Vanguard Group, “nearly a third of companies that use automatic 401(k) enrollment now start workers saving at 6% of their salaries or higher.” That’s just slightly below the number of companies that auto-enroll workers at a 3% contribution rate.

But even if you weren’t auto-enrolled at 6%, you can still enjoy the same benefits — you just have to get proactive. Here’s how:

1)    Have a chat with HR about your company’s 401(k) match policy.Specifically, you’ll want to ask about (1) the default contribution rate, (2) your employer’s matching policy, including the maximum they’ll contribute, and (3) how you can maximize your contributions.

• Employer match programs differ by company, but the three most common match policies are full match, partial match, and non-matching contributions.
• A full match means your company will match your contributions dollar for dollar, up to a specified max. So, if you put $1 in, your employer puts $1 in.
• A partial match means your company matches a percentage of your contributions, up to a specified max. The most common structure is a 50% partial match. So, for every $1 you put in, your company puts in $0.50.
• Non-matching contributions are when your company contributes money to your 401(k), even if you don’t. This is the least common of the three, but it does exist.

2)    Calculate how much you need to contribute to get the maximum match.Once you know your company’s match policy and contribution cap, it’s time to do a little math. Here’s how to find out how much your company will contribute, as well as how much you’ll need to save each year to snag the maximum match.

COMPANY’S CONTRIBUTION EQUATION
(MATCH PERCENT) x (PERCENT OF SALARY) = COMPANY MULTIPLIER

• (YOUR MULTIPLIER) X (SALARY) = COMPANY ANNUAL CONTRIBUTION
• So, let’s say you’re making $77,000 pre-tax, and your employer offers a 50% partial match on contributions up to 6% of salary. The equation would look like this:
• 0.50 x 0.06 = 0.03 ← COMPANY MULTIPLIER
• 0.03 x $77,000 = $2,310
• YOUR CONTRIBUTION EQUATION
• (PERCENT OF SALARY) X (SALARY) = YOUR ANNUAL CONTRIBUTION
• If your employer offers a match on your 401(k) contributions up to 6% of your salary, you’ll need to save that percentage of your pay to receive their maximum match. Sticking with that same scenario, if you’re making $77,000 pre-tax, that would look like…
• 0.06 x $77,000 = $4,620
• Now that you have the important numbers, you can see where you fall within that recommended 10% to 15% savings range. Simply add what you’re contributing to what your company is contributing and divide by your salary. Continuing with the same example, we get…
• $4,620 + $2,310 = $6,930
• $6,930 / $77,000 = 0.09 or 9%
• Ideally, the combination of these two numbers will land you somewhere between 10% to 15% of your pre-tax salary. If so, congrats! You are hitting one of the most widely accepted retirement suggestions. If not — and you have the financial bandwidth to do so — you may want to notch your contributions even higher, even though your company is no longer matching your savings.

What if you can’t contribute enough to hit the match?

Hey, we all have to start somewhere. If you can’t currently contribute enough to hit your employer’s max match, it’s worth looking at your budget to see where you can free up some cash. Your employer match is literally free money. Plus, the dollars you contribute to your 401(k) are pre-tax, which means these contributions actually lower your taxable income for the year.

If you really can’t slash from your budget, set a goal of increasing your contribution by 1% of your pre-tax salary each year. So, if you’re making $50,000 before taxes this year, aim to be in a good enough place to increase your annual contribution by $500 for 2025. According to Indeed, the average employee receives a 3% raise each year; if you leave your budget the same and direct a third of that increase to your 401(k) contribution, you’ll easily meet this goal.

If Your Company Doesn’t Offer a Match

Not every company offers a match, but that doesn’t mean you’re out of luck. There are also retirement savings options that offer great tax advantages — like an IRA or Roth IRA — that aren’t attached to your employer.

Tax-Deferred Contributions:With a traditional IRA, your contributions reduce your taxable income now, and you pay taxes when you withdraw in retirement.

Taxed-Up-Front Contributions:Roth IRAs are funded with after-tax dollars, so withdrawals in retirement are tax-free. This can be a huge benefit if you expect to be in a higher tax bracket later on.

By spreading your retirement savings across different accounts, you can take advantage of various tax benefits and boost your overall savings. The key is to be proactive and take control of your financial future.

After all, the best time to start saving was yesterday, but the second best time is now. So, take that step today, and your future self will thank you.