U.S. 401(k) savings rates are at all-time highs, Vanguard study finds

He faces the American retirement system Many challengesbut one important area is seeing improvement: 401(k) savings.

In 2023, according to A A new study from VanguardAmericans are setting aside more of their income for retirement than ever before. The financial giant studied the savings behavior of its 5 million 401(k) participants and found that their average contribution rate was 7.4% — the highest rate Vanguard has ever recorded.

Combined with employer matches, the average overall savings rate is 11.7% — an all-time high.

“When you step back and look at these trends over more than 20 years, there is incredible progress,” said Jeff Clark, head of defined contribution research at Vanguard and an author of the study.

And it’s not just Vanguard, other researchers have also seen an uptick in American retirement savings. Make use of capital lettersa financial technology company that helps clients roll over old 401(k) accounts, found that the average 401(k) balance was $90,101 in 2023 — an 8% increase from 2022.

What could explain these improvements? According to Vanguard, a big part of the answer is designing a better plan. Automatic features – such as automatic recording, Target date funds and automatic escalation – causing many workers to default to better savings habits.

“The plan designs are actually the strongest they’ve ever been,” Clark said. “As more plans offer automatic enrollment, we are seeing an increase in participation rates.”

In recent years, these features have become increasingly common. Vanguard found that in 2023, 59% of 401(k) plans offered automatic enrollment — the most widespread ever. Of these plans, 60% of delinquent workers paid a contribution rate of at least 4%. Just a decade ago, only 35% of plans did this.

The result is more money hidden for American retirees. 43% of plan participants increased their savings rates in 2023 — more than Vanguard has previously recorded.

“We are very excited to highlight the progress employers are making in how they set up their retirement plans, as well as the corresponding improvements in participant behaviors,” Clark said.

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Many financial advisors say they’ve seen this trend firsthand, as clients have increased their 401(k) contributions over the years.

“We’ve noticed a general feeling that maximizing retirement contributions is on the table,” said CEO Brandon Garrett. Bent Oak Capital (Weatherford, Texas). “Savings contributions to qualified retirement plans have continued to climb for the majority of our clients.”

Others see more in the business than just the automatic plan features.

“I think it’s a bull market,” said John Power, a director at the company. Energy plans (Walpole, Massachusetts). “While people tend to be hesitant to invest when the market is down, FOMO [fear of missing out] It makes them save more when it expands.”

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Whatever the reason, researchers and wealth managers are seeing a clear improvement in retirement savings — and Vanguard sees no end in sight. For one thing, thanks Safe 2.0automatic enrollment will soon be required for nearly all new 401(k) plans, starting in 2025.

“Ten years ago, the thinking might have been that adoption of automatic enrollment might start to plateau, but what we are seeing is that it continues to grow year after year,” Clark said. “And certainly considering Secure 2.0 essentially mandates that new 401(k) plans have to have automatic enrollment, we can think that trend will continue.”