The U.S. retirement system faces many challenges, but one important area is seeing improvement: 401(k) savings.
In 2023, according to a new study from Vanguard, Americans set aside more of their incomes for retirement than ever before. The financial giant studied the savings behavior of its 5 million 401(k) participants, and found that their average contribution rate was 7.4% — the highest rate Vanguard has ever recorded.
Combined with employer matches, that brings the average overall savings rate to 11.7% — an all-time high.
“As you step back and look at these trends over 20-plus years, there’s just incredible progress,” said Jeff Clark, head of defined contribution research at Vanguard and the author of the study.
And it’s not just Vanguard — other researchers have also seen an uptick in American retirement savings. Capitalize, a fintech company that helps customers roll over old 401(k)s, found that the average 401(k) balance was $90,101 in 2023 — up 8% from 2022.
What could explain these improvements? According to Vanguard, a big part of the answer is better plan design. Automatic features — such as auto-enrollment, target date funds and auto-escalation — are defaulting many workers into better saving habits.
“Plan designs are really the strongest that they have ever been,” Clark said. “As more plans are offering auto-enrollment, we’re just seeing participation rates increase.”
In recent years, these features have become increasingly common. Vanguard found that in 2023, 59% of 401(k) plans offered auto-enrollment — the most widespread it’s ever been. Among those plans, 60% defaulted workers into a contribution rate of at least 4%. Only a decade ago, just 35% of plans did so.
The result is more money being stashed away for American retirements. Forty-three percent of plan participants increased their savings rates in 2023 — more than Vanguard had ever previously recorded.
“We’re very encouraged to highlight both progress the employers are making with how their retirement plans are set up, as well as corresponding improvements in participant behaviors,” Clark said.
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Many financial advisors say they’ve seen this trend firsthand, as clients have increased their 401(k) contributions over the years.
“We have noticed a general sentiment … that maxing out retirement contributions is table stakes,” said Brandon Garrett, CEO of BentOak Capital in Weatherford, Texas. “Savings contributions to qualified retirement plans have continued to escalate for the majority of our clients.”
Others see more at work than just automatic plan features.
“I think it has to do with the bull market,” said John Power, principal of Power Plans in Walpole, Massachusetts. “While people tend to be hesitant to invest when the market is contracting, FOMO [fear of missing out] causes them to save more when it is expanding.”
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Whatever the reason, researchers and wealth managers both see a clear improvement in retirement savings — and Vanguard sees no end in sight. For one thing, thanks to Secure 2.0, auto-enrollment will soon be required for almost all new 401(k) plans, starting in 2025.
“Ten years ago, the thinking might have been that the adoption of auto-enrollment may start to plateau, but what we’re seeing is year-over-year, it continues to grow,” Clark said. “And certainly as you think about Secure 2.0 essentially mandating that new 401(k) plans have to have auto-enrollment, we can think this trend is going to continue.”
