Americans are setting aside funds for retirement at record rates, according to a new report by Vanguard. The “How America Saves 2024” study found that more than 4 in 10 workers increased their 401(k) contributions last year, despite high inflation. David Stinnett, head of strategic retirement consulting at Vanguard, said, “This year’s data shows these plans are working as intended and driving stronger savings and investing behaviors for workers.
The report analyzed data from about 1,500 qualified plans and nearly 5 million retirement plan participants.
It discovered that automatic enrollment in retirement plans significantly boosts participation, with 60% of plans now automatically enrolling employees. Automatic enrollment has become especially impactful for younger workers. Most employer-provided plans start workers at a deferral rate of 4% or higher.
The average total savings rate, including employee deferrals and employer matches, is now 11.7%—the highest Vanguard has recorded in over two decades. However, income remains a significant factor in the ability to save. Participation varies widely, with 58% of eligible employees earning $30,000 to $49,999 contributing to their plans, while 95% of those with incomes exceeding $150,000 participated.
Younger workers and those with shorter job tenures also show lower participation rates.
Americans boost 401(k) contributions
Target-date funds are gaining popularity, with 83% of participants using them, up from 60% in 2022.
These funds automatically adjust the asset mix as the retirement date approaches, offering a simplified investment approach for savers. “Before target-date funds, young workers often had equity allocations well below recommended levels,” said Stinnett. The rise of these funds has mitigated extreme equity portfolios among participants.
Despite the positive trends, there has been an increase in hardship withdrawals. Nearly 4% of Vanguard 401(k) holders withdrew funds early for financial emergencies in 2023, a record high. These withdrawals, often to cover medical expenses or avoid foreclosure, come with tax penalties if the individual is under 59½.
Research from the Transamerica Center for Retirement Studies found a significant rise in “super savers”—those contributing more than 10% of their salaries to retirement plans. In 2023, 44% of workers were classified as super savers, including 53% of Generation Z, 44% of Millennials, and 40% of Generation X. Catherine Collinson, CEO of Transamerica Institute, noted that the number of super savers has grown significantly compared to just a few years ago.
While being a super saver is crucial for a comfortable retirement, Collinson emphasized the importance of maintaining health and updating job skills to ensure continued employment and financial growth.
