Americans with access to 401(k) plans can achieve a more secure retirement if they begin in their 20s and save consistently over the course of their career, according to findings from the Center for Retirement Research (CRR) at Boston College. The latest National Retirement Risk Index (NRRI) from CRR was sponsored by Prudential Financial Inc.

Individuals with a workplace-based retirement plan should look to that plan, whether it’s a 401(k) or other retirement savings plan, for 35% of their retirement income, on average, the CCR study contends.

The average required savings rate to achieve that level of targeted income is 14%—that is, if savings starts at age 35 and retirement occurs at age 65, according to “How Much Should People Save?” The research was designed to determine the amount 401(k)s would need to generate for working-age American households to be able to maintain their standard of living in retirement.

“Planning for Retirement: The Role of 401(k)s in Retirement Income,” a Prudential paper, summarizes the NRRI research and notes the improvements to 401(k)s since they were introduced as supplemental savings vehicles in 1978.

The research helps to highlight the strength of the existing retirement system, according to James McInnes, senior vice president of product management and development at Prudential Retirement, and co-author of Prudential’s paper. “Modern plan design allows individuals to get tax-advantaged savings and the ease of payroll deduction, as well as investment education, advice and institutionally priced products to help provide them the opportunity to better prepare for a more secure retirement,” McInnes says.

Improved Plan Features

Prudential’s paper highlights three features of 401(k) plans that help improve retirement security. Matching contributions and auto enrollment have boosted incentives to save and made it easier to do so. Retirement modeling tools, which project future retirement income, can improve savings behavior by increasing savings rates.

The NRRI model assumes that households start saving at age 35 and retire at age 65. The research also found that the required savings rate for an average wage earner in a single income household drops from 15% to 10%, if the individual starts saving at age 25, instead of age 35.

When the target retirement age is changed to age 67—the retirement age of Social Security for those born after 1959—the average required savings rate (starting at age 35) drops from 15% to 12%. When the retirement age is further delayed to age 70, the average rate drops to 6%. If approaches are combined, with savings starting at age 25 and retirement occurring at age 70, the required savings rate drops to 4%.

“Even small changes in savings behavior can have a positive impact on individuals’ results,” McInnes says. “This research shows it is never too late to start saving, and even if you didn’t begin at age 25, saving a little more now or extending retirement can still get you to a comfortable place.”

Employers can help their workforce achieve their retirement savings goals by ensuring they take advantage of the employer-match provided, offering automatic enrollment and providing participants with the proper tools, says George Castineiras, senior vice president, total retirement solutions, at Prudential Retirement, and one of the authors of the Prudential paper.

CCR’s paper “How Much Should People Save?” can be downloaded here. The paper’s co-authors are Alicia Munnell, the center’s director; Anthony Webb, a senior research economist at the center; and Wenliang Hou, a research associate at the center.

“Planning for Retirement: The Role of 401(k)s in Retirement Income” is available on Prudential’s website.