Report: If All Workers Had DC Plan Access, Retirement Readiness Would Rise 20%
Only four in 10 Americans are on track to maintain their lifestyle in retirement, but that would increase to six in 10 if all employed Americans had access to a defined contribution plan at work, according to new research released today by Vanguard.
“Expanding access to defined-contribution plans and improving plan design has dramatically improved retirement outcomes.”
Vanguard’s Fiona Greig, Ph.D.
The Vanguard Retirement Outlook evaluates the U.S. retirement landscape to measure the retirement readiness of Americans. The new report found workers with access to DC plans are twice as likely to reach their retirement savings goals as those without, highlighting the critical role that 401(k) plans play in building a stronger retirement system.
If DC plan access were available to all workers, retirement readiness could increase by 19 percentage points. Working two years longer—until age 67—could add another 13 percentage points to readiness.
“Expanding access to defined-contribution plans and improving plan design has dramatically improved retirement outcomes,” said Fiona Greig, Ph.D. Global Head of Investor Research and Policy, and co-author of the report. “Our research shows that features like auto enrollment and higher default saving rates are helping more Americans build retirement wealth.”
Earlier this year in its annual “How America Saves” report, Vanguard reported the adoption of automatic enrollment has more than tripled since year-end 2007. At year-end 2023, 59% of Vanguard plans had adopted automatic enrollment, including 77% of plans with at least 1,000 participants.
The conclusion of today’s report says workers with DC plan access are more than twice as likely to be prepared for retirement thanks to features like auto enrollment, auto escalation, and QDIAs that make saving and investing easier and more effective.
Younger workers off to good starts
Across all income levels, Gen Z and Millennials are projected to be better prepared for retirement than Baby Boomers and Gen X, thanks to broader DC plan access and stronger plan design. About 47% of Gen Z and 42% of Millennials are on track for retirement.
However, debt burdens—especially student loans—remain a significant challenge for many. Millennials’ debt burden (25% of income) reduces their retirement success probability by 9 percentage points to 42%. The Vanguard report found financial strain of this debt burden poses a significant challenge for younger individuals trying to save for retirement, and emphasizes the importance of financial wellness, advice and emergency savings.
Among older generations, Vanguard found that nearly 40% of all Boomers and Gen X workers are on track for retirement, with higher-income workers substantially better prepared. The median-income Boomers will be able to replace 56% of their pre-retirement income, with an annual spending shortfall of $9,000, or 24% of their overall spending needs. For Generation X, the outcome improves with the median spending shortfall reduced to $6,000 annually, accounting for 18% of their overall retirement spending needs.
While the retirement outlook is enhanced for younger generations, two key levers would lead to greater improvements—continued expansion of DC plan access and two additional years of work, which may become the norm for younger generations. For older generations, tapping into home equity presents an additional opportunity to help close retirement spending gaps and enhance financial security.
“Retirement readiness isn’t just about saving—it’s about having the right tools, support, and access throughout a worker’s career,” said Kelly Hahn, Vanguard’s Head of Retirement Research, and co-author of the report. “Retirement security is a shared responsibility. Policymakers, employers, and individuals all have a role to play in building a more resilient future.”
The Vanguard Retirement Outlook highlights an important path toward building a stronger retirement system. Expanding access to DC plans and building on their proven success offers a tremendous opportunity to improve financial security for millions of Americans.
Read the full Vanguard Retirement Outlook here.
SEE ALSO:
• Participants Hit All-Time Savings High in Vanguard’s ‘How America Saves’ Report
• Two-Thirds of Americans Describe Retiring at 65 as ‘Unattainable’
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
