U.S. 401(k) Savings Rates Hit Record High, Vanguard Study Finds

The American retirement system is facing many challengesbut one important area is seeing improvement: 401(k) savings.

In 2023, according to new study from Vanguard, Americans are spending a larger share of their income on 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, this brings the average overall savings rate to 11.7%, a record high.

“When you step back and look at these trends over 20 years, you see incredible progress,” said Jeff Clark, head of defined contribution research at Vanguard and author of the study.

And it’s not just Vanguard: Other researchers have also found an increase in American retirement savings. Capitalizea fintech company that helps clients rollover their old 401(k)s, found that the average 401(k) balance was $90,101 in 2023, an 8% increase from 2022.

What could explain these improvements? According to Vanguard, a large part of the answer lies in better plan design. Automatic features — such as automatic registration, target date funds and automatic escalation – cause many workers to adopt better saving habits by default.

“The design of the plans is really the strongest it’s ever been,” Clark said. “As more plans offer auto-enrollment, we just see participation rates increase.”

In recent years, these characteristics have become increasingly common. Vanguard found that in 2023, 59% of 401(k) plans offered automatic enrollment – ​​the most widespread ever. Among these plans, 60% imposed a contribution rate of at least 4% on workers. Just ten years ago, only 35% of plans did this.

The result is more money being set aside for American pensions. Forty-three percent of plan participants increased their savings rate in 2023 – more than Vanguard has ever recorded before.

“We are very encouraged to highlight both the progress employers are making in how their retirement plans are set up, as well as the corresponding improvements in participant behaviors,” Clark said.

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Many financial advisors say they’ve seen this trend as clients have increased their 401(k) contributions over the years.

“We have noticed a general sentiment…that maximizing retirement contributions is table stakes,” said Brandon Garrett, CEO of Capital BentOak in Weatherford, Texas. “Savings contributions to qualified retirement plans have continued to increase for the majority of our customers.”

Others see more at work than just automatic features of the plan.

“I think it has to do with the bull market,” said John Power, director of Diet Plans in Walpole, Massachusetts. “While people tend to be hesitant to invest when the market is contracting, FOMO (fear of missing out) pushes them to save more when the market is expanding.”

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Whatever the reason, researchers and wealth managers are both seeing a marked improvement in retirement savings — and Vanguard doesn’t see an end in sight. On the one hand, thanks to Secure 2.0automatic enrollment will soon be required for almost all new 401(k) plans, starting in 2025.

“Ten years ago, you would have thought that auto-enrollment adoption might start to plateau, but what we’re seeing is that year over year it continues to grow,” Clark said . “And certainly, if we think about Secure 2.0 essentially requiring that new 401(k) plans must have automatic enrollment, we can think that this trend will continue.”