Americans are better than ever at saving for retirement, Vanguard says

For decades, retirement saving has been a quiet source of dread for many American workers. It was something people knew they should be doing, but often weren’t sure they were doing well enough — or at all. But according to Vanguard’s new “How America Saves 2025” report, that narrative is shifting.

According to the investment management company, Americans are setting aside more money for retirement than ever before. On average, Americans saved 7.7% of their paycheck in their employer-provided retirement plans last year, a record high, even as credit-card debt spikes and one in three federal student loan borrowers face defaulting on their loans.

Auto-enrollment changes the game

It starts with a simple change: auto-enrollment. Just a few years ago, many workers had to manually sign up for their 401(k) plan, fill out paperwork, and make investment choices — often while still trying to figure out the coffee machine at their new job. Today, more than 61% of retirement plans automatically enroll employees, and they’re enrolling them at higher initial contribution rates, often 4% or more Vanguard says. That single change has pulled in millions of savers who might otherwise have procrastinated for years.

According to the report, nearly 30% of plans now set default contributions at 6% or higher, almost double the proportion from 2015. While employees can opt out or adjust their savings rate, inertia keeps many at these higher contributions, quietly building stronger nest eggs.

Participation and balances reach new highs

Access is another key factor. Three out of four plans now let employees start saving immediately, rather than making them wait months before becoming eligible. Combine that with automatic annual deferral increases, typically by 1–2%, and it’s clear why retirement saving rates are climbing.

In 2024, Vanguard says the average 401(k) balance reached nearly $148,000, marking a roughly 10% increase over the prior year. It wasn’t just market performance driving the gains — although a strong 13.7% average return certainly helped—but also how people are investing.

Nearly half of participants increased their savings rate, up from 39% in 2022. When employer contributions are included, the average total participant contribution rate hit 12%, up from 11.3% four years ago—right in line with Vanguard’s recommended 12–15% savings rate for long-term retirement security.

Professional management takes over

Perhaps the most dramatic shift has been in how Americans invest their retirement savings. More than two-thirds of participants now use professionally managed allocations, like target-date funds or managed accounts, compared to just under half a decade ago. For many, this hands-off approach removes the guesswork and emotional decision-making that often lead to costly mistakes. In fact, only 1% of target-date fund investors traded mid-year, compared to a much higher share among self-directed investors.

Target-date funds, in particular, have become nearly universal, with 99% of plans offering them. These “set it and forget it” strategies automatically adjust asset allocations over time, shifting from stocks to bonds as participants approach retirement age.

Hot Roth options gain traction

The report notes that tax planning is also gaining steam. Eighteen percent of participants now contribute to Roth 401(k) options, a record high. While workers pay taxes upfront on Roth contributions, the funds grow tax-free and can be withdrawn tax-free in retirement — an appealing option for those expecting higher tax rates down the line.

Challenges remain

But for all the progress, the report highlights where Americans still struggle. Vanguard notes that median retirement balances remain far lower than averages, at around $38,000, underscoring disparities in how prepared people are. Nearly 5% of workers took hardship withdrawals in 2024, up from 3.6% in 2023 — a sign that emergency savings remain too thin for many households.

Job changes also continue to disrupt savings momentum, according to the report. When workers switch employers, rolling over 401(k) funds can be a difficult process that leads to lost accounts or cash-outs. Proposed auto-portability measures could someday help by automatically transferring retirement balances to new plans, potentially adding hundreds of thousands of dollars to a worker’s lifetime retirement wealth.

More workers are not just saving — but saving well. In a landscape long defined by uncertainty and fear, that’s a win worth celebrating. But as economic realities shift and household pressures mount, continued innovation in plan design and participant education will be critical to keep America’s retirement momentum on track.