Some people save more for retirement than others, even when they have similar salaries. That's the key takeaway in a recent report from the Employee Benefit Research Institute and J.P. Morgan Asset Management.
The study found that the middle 50% of savers set aside about 3 percentage points more of their savings to their 401(k) accounts throughout their careers than the bottom 25% of savers. The "middle savers" saved about 5% of their salary at younger ages, slowly raising the amount to about 6% as they hit retirement age. "Low savers," in contrast, saved about 2%, gradually increasing the amount to 3% as they readied to retire.
The 3-percentage-point difference in savings, if sustained over time, can make a significant difference in savers' retirement preparedness, the research found. Middle savers amassed retirement account balances that were 2.1 times greater than their current salary by age 60, almost double the size of low savers' retirement nest eggs.
Interestingly, middle savers were able to save more not because they had higher-paying jobs. Both middle savers and low savers, by age 50, were earning about $50,000 a year.
What accounted for the difference in savings seemed to be tied to spending patterns of the two groups. Low savers spent about 2% to 3% more of their salary than middle savers on housing, transportation, and food and beverages at almost all ages.
Given the similar income, the spending and savings differences between the two groups appear to be a "binary choice," said Katherine Roy, managing director and chief retirement strategist at J.P. Morgan Asset Management in New York.
"We found that the 3% difference in savings essentially results in a 3% difference in spending," Ms. Roy said. "Because low savers are spending 3% more, they are saving 3% less than middle savers. Likewise, because the middle savers are saving 3% more, they are spending 3% less than low savers."
The report, which is based on 10,000 households with 401(k) account balances of at least $100, marks the launch of a research collaboration between EBRI and J.P. Morgan that will leverage EBRI and the Investment Company Institute's database of 27 million 401(k) participants and J.P. Morgan's database of 22 million consumers.
