It is depressing to read the ceaseless barrage of papers declaring that Americans have little chance of having enough money saved for retirement.
Take a deep breath, though. The majority of this editorial is bullish.
According to two recent and unexpected studies, the future may not be as dire for many Americans as some pundits have claimed. One study is from Transamerica Center for Retirement Studies, and the other is from Vanguard.
These are a few of the main conclusions:
Savings for retirement surge
Vanguard discovered that Americans are saving more for retirement than ever before, even in the face of increasing inflation. According to Vanguard’s “How America Saves 2024” study, over 4 out of 10 employees increased the portion of their wage they put into their 401(k) account last year.
According to Vanguard’s head of strategic retirement consulting David Stinnett, the study “revealed plenty of reasons for optimism that these plans are working as intended and driving stronger savings and investing behaviors for workers,” as was reported by Yahoo Finance.
The data was derived from the approximately 5 million participants in retirement plans offered by Vanguard, which provides record-keeping services directly to about 1,500 qualifying plans.
Little assistance goes a long way.
Automatic enrollment, please bow. Six out of ten plans automatically enroll employees in the retirement plan; they are not required to opt in, but they do have the choice to opt out. Just one-third of plans did so ten years ago.
This “overcomes many of the behavioral challenges that keep employees from enrolling in their 401(k) plan and getting started with investing for retirement,” Stinnett stated.
In the meantime, there has been an increase in the deferral rate—the portion of your income that is automatically sent to your 401(k). According to the research, almost twice as many employees enrolled in employer-provided plans last year at 4% or above than did so ten years prior.
These automated savings options work well together. Vanguard data shows that the average total savings rate, which accounts for employer match and employee deferrals, is 11.7%. In the more than 20 years that the company has been analyzing retirement saving habits, that proportion is the highest that it has ever observed.
According to Stinnett, you should set aside 12%–15% of your salary for retirement. “Workers are very close to the ideal range with the overall average savings rate this year.”
When you combine that with the stock market’s recent upswing, account balance averages at Vanguard grew by 19% in 2023. As of year-end 2023, the median participant account balance was $35,286—a 29% increase from year-end 2022—and the average balance was $134,128.
According to Stinnett, the effects of auto-enrollment are “most apparent when looking at younger workers.” “Being automatically enrolled into their workplace retirement plans early in their careers has been a benefit for millennial and Gen Z workers.”
Even while I’m happy to see more people saving for retirement, it’s important to keep in mind that this represents a small portion of American workers. Retirement savings are entirely optional for the approximately 57 million US private sector employees who do not have access to an employer-sponsored pension, such as a 401(k).