Americans are saving more for retirement than ever before, according to a new report from Vanguard. The average 401(k) savings rate reached a record high of 12% in 2024, including both employee and employer contributions. “There has been persistent, year-over-year progress in retirement savings behaviors,” said David Stinnett, head of strategic retirement consulting at Vanguard.
“Seemingly regardless of market and economic conditions, we find that workers are saving more of their paycheck and investing their savings in age-appropriate asset allocations more consistently.”
The report analyzed data from nearly 5 million participants across Vanguard’s defined contribution plans. It found that workers with higher incomes tend to have higher 401(k) balances. The median balance for those earning between $100,000 and $149,999 is nearly double that of workers making $50,000 to $74,999.
Automatic enrollment has played a significant role in boosting savers’ balances. Employees with 10 or more years of tenure who were automatically enrolled had median account balances about 60% higher than those who had to opt-in. “We’re encouraged by how employers design their 401(k) plans to make it easy for workers to save and invest for retirement, and automatic enrollment is a big part of that,” Stinnett said.
Despite periods of stock market volatility, Vanguard reports a consistent positive trend in plan participation, savings rates, and investing. In 2024, 76% of plans offered immediate eligibility for employee contributions, up from 71% in 2020.
Record high 401(k) saving rates
Additionally, 61% of plans now have automatic enrollment, compared to 54% in 2020. The average employee deferral rate was estimated at 7.7% in 2024, with one-quarter of participants saving 10% or more. About 14% of workers maxed out their 401(k) plans, typically being older, having higher incomes, larger account balances, and longer tenures with their employers.
However, the ideal savings percentage can vary based on individual circumstances. Financial advisors generally recommend contributing enough to receive the full employer match. The most popular match formula is 100% for the first 3% an employee contributes, and 50% for the next 2%.
The report also highlighted the impact of target-date retirement funds on savings. More than 80% of participants used these funds, which automatically adjust investments as the participant ages. Despite the positive trends, there has been a rise in hardship withdrawals.
In 2024, 4.8% of participants took a hardship withdrawal, up from 3.6% in 2023. These withdrawals typically result in income tax and an additional 10% tax for those under 59 1/2. Overall, the data shows a strong and improving retirement savings trend among American workers, thanks in part to evolving plan features designed to facilitate contributions.
