Vanguard: 42% of US Participants Are on Track to Maintain Lifestyle in Retirement

Forty-two percent of Americans are on track to maintain their lifestyle in retirement, according to “The Vanguard Retirement Outlook: Strong National Progress, Opportunities Ahead,” released Tuesday.

Workers with defined contribution plans were almost twice as likely (54% vs. 28%) to reach retirement savings goals as those without DC plan access. If all workers had access to a DC plan, retirement readiness would rise to 61%, according to Vanguard analysis.

Those with DC plan access also had a higher median income ($67,000) than those without ($37,000). They likewise experienced an annual spending surplus ($1,000), rather than a shortfall ($8,000) experienced by those without DC plans. According to the U.S. Bureau of Labor Statistics, 66% of civilian American workers had access to a DC plan through their employer in 2024.

“The typical American with access to a DC plan is on track to be ready—so that’s the first good news,” says Fiona Greig, global head of investor research and policy at Vanguard’s Investment Strategy Group. “If we were to expand DC plan access for all, we would see a much brighter retirement readiness picture.”

A Shifting Landscape

“Alongside demographic changes, the U.S. retirement system has undergone a structural shift,” Vanguard’s report stated. “Defined benefit plans are no longer the dominant vehicle for employer-sponsored retirement savings.”

The proportion of workers with access to DB plans declined to 23% in 2022 from 38% in 1989, according to data in the report. Meanwhile, the share of workers with access to DC plans rose to 52% from 35% over the same period. Although a higher percentage of workers have access to DC plans today than had to DB plans over the past 45 years, many still lack access, the research found.

Vanguard evaluated the traditional three-pillar retirement system in the U.S., reviewing the retirement provided by the combination of Social Security, employer-sponsored plans and personal savings. The researchers noted that the quality of Americans’ retirement could decline, as the traditional pillar No. 1, the Social Security Old-Age & Survivors Insurance trust fund, is expected to be depleted by 2033, possibly leading to a 23% reduction in benefits without legislative action.

Generational Progress

Despite a looming, anticipated reduction of Social Security benefits, Vanguard found younger generations are expected to be better prepared for retirement than are Baby Boomers. However, Greig says Millennials and Generation Z are experiencing a “mixed picture” that is not entirely positive.

Debt burdens, especially student loans, pose a significant challenge for young workers trying to save for retirement, the report stated. At the median, Millennials, when they are ages 35 to 38, held approximately $12,000 in non-housing debt, Vanguard found. That is higher than older generations ($8,000 for Generation X and $6,000 for Baby Boomers) at the same age. The debt burden equaled about 25% of income for Millennials, compared with 15% for Baby Boomers at the same age.

Working in younger generations’ favor are expanded access to DC plans and stronger plan design, Greig says: 74% of Gen Z workers were projected to have access to DC plans by age 65, compared with 55% of Baby Boomers. Features such as automatic enrollment, higher default savings rates and professionally managed allocations give Gen Z and Millennials a leg up on their older counterparts.

Creating Solutions

Greig says the figure of 42% of Americans on track for retirement does not indicate that the other 58% is far off track: An American with the median income of $51,000 will have a retirement savings shortfall of only $5,000 annually. Greig says future retirees could “make up” the shortfall by working slightly longer, spending a little less in retirement and leaning on family, among other solutions.

Vanguard’s report found that adding two more working years would help an additional 10% of workers across all generations to achieve retirement security. At the median, Gen Z and Millennial workers would turn a spending shortfall turn into a surplus, while Gen X and Baby Boomers would see their projected spending gaps reduced significantly. Additional working years for those able to do so would increase retirement readiness by 13 percentage points, powered by more career savings, higher income from delayed claiming of Social Security and fewer years of retirement to fund.

While laboring for longer is one solution to bridge the saving gap, there is “still more work to be done”—especially for low-income workers, says Greig.

Even though Social Security will replace 60% of a low-income earner’s income in retirement, individuals’ spending needs do not necessarily drop, Greig says: “Low-income people have very little fat in their budget to cut,” so their spending hardly drops at all when they retire.

Vanguard made several policy recommendations that can benefit workers’ assets in retirement, not only in lower income brackets, but across all income levels:

• Strengthening Social Security to address the looming shortfall;
• Expanding DC plan access, especially for workers at smaller companies;
• Improving DC plan design for portability and reduced friction when changing jobs; and
• Increasing access to financial planning and advice, including debt management and strategies for tapping home equity.

Tapping Home Equity

The savings gap for Baby Boomers would “improve dramatically” if they accessed the value they have tied up in their homes, according to Greig.

Leveraging home equity can include downsizing to a smaller or less expensive home or selling a home and becoming a renter, says Greig. Vanguard’s report also suggested relocating to an area with a lower cost of living or using a reverse mortgage—though none of the strategies has proven particularly popular, largely due to people’s emotional attachment to their homes, according to the report.

“Still, those facing a significant shortfall may need to consider one of these options, especially since home value appreciation in recent years has made them more appealing,” the report stated. From 2019 to 2022, home values increased 20% in real terms, and they have continued to increase ever since, Vanguard reported.

DC Plan Access and Design

In addition, plan sponsors “have a very critical role to play in terms of improving plan design and helping people maintain momentum in their savings,” Greig says. When people switch jobs, they risk 401(k) leakage if their balances are not automatically carried over to a new employers’ plan. To reduce leakage, Greig says plan sponsors can opt in to automatic portability offerings “to help those high turnover workers keep their pot as they move.”

Having a recordkeeper that participates in the Portability Services Network can help reduce leakage, Greig says. When an employee switches jobs, if their old and new jobs both participate, a retirement account balance less than $7,000 rolls over automatically into an active account with their new employer.

Auto-portability has been touted by industry experts as especially beneficial for communities of color, women, younger workers and lower-income workers, all of whom are likely to be affected by 401(k) cashout leakage when they change jobs.

Aside from adopting auto-portability, Greig says plan sponsors can also encourage new employees to maintain the saving rate they had at their last job, or to save more as their income goes up. She says that, typically, when people switch employers, their income goes up but their saving rate goes down. Plan sponsors also can invite people to “save more than the default [rate]” to counter that.

Greig notes that it would be good to cut some of the “red tape” from plans, including eligibility requirements and vesting requirements, which give people a “slow start to saving in the plan” and potentially risk employees losing employer matches if they leave before the vesting period is up. Greig says plan sponsors offering immediate eligibility and immediate vesting or no vesting would be ideal for participants’ outcomes.

“While everyone’s retirement circumstances are different, policymakers, plan sponsors and plan providers have the tools to make further meaningful progress,” Vanguard’s report concluded. “Expanding workplace plan access, enhancing portability, and optimizing plan designs can address readiness gaps while supporting a more resilient and inclusive retirement system.”

The report leveraged Vanguard’s Retirement Readiness Model, calibrated with financial and demographic characteristics from the Federal Reserve Board’s 2022 Survey of Consumer Finances.