Your 401(k) is up, and a new report shows increased savings. But Americans need to do more

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How’s your 401(k) looking? A new report shows Americans are saving more, but probably need to do even more. 

Vanguard has released its annual report, How America Saves 2024. Vanguard and Fidelity are the two biggest sponsors of 401(k) plans, and this is a snapshot of what nearly five million participants are doing with their money. 

The good news: stock market returns are up and, thanks largely to automatic enrollment plans, investors are saving more than they did in the past. 

The bad news: account balances for the median 401(k) of a person approaching retirement (65+) remains very low. 

The takeaway: Americans are still very reliant on Social Security for a large chunk of their retirement. 

Higher returns, participation rates, savings rates 

Why do we care so much about 401(k) plans? Because it’s the main private savings vehicle Americans have for retirement. More than 100 million Americans are covered by these “defined contribution” plans, with more than $10 trillion in assets. 

First, 2023 was a good year to be an investor.  The average total return rate for participants was 18.1%, the best year since 2019. 

But to be effective vehicles for retirement, these plans need to: 1) have high participation rates, and 2) hold high levels of savings. 

On those fronts, there is good news. John James, managing director of Vanguard’s Institutional Investor Group, called it “a year of progress.” 

Plan participation reached all-time highs. Thanks to a change in the law several years ago, a record-high 59% of plans offered automatic enrollment in 401(k) plans. This is a major improvement: ipreviously, enrollment in 401(k) plans were often short of expectations because investors had to “opt-in,” that is they had to choose to participate in the plan.  Because of indecision or simple ignorance, many did not. By switching to automatic enrollment, participants were automatically enrolled and had to “opt-out” if they did not want to participate. 

The result: enrollment rates have gone up. Plans with automatic enrollment had a 94% participation rate, compared with 67% for voluntary enrollment plans. 

Participant saving rates reached all time highs. The average participant deferred 7.4% of their savings. Including employee and employer contributions, the average total participant contribution rate was 11.7%. 

A few other observations about Vanguard’s 401(k) plan investors: 

They prefer equities and target date funds.  They love equities over bonds or any other investments. The average plan contribution to equities is 74%.  A record-high 64% of all 2023

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The full article is available here. This article was published at CNBC Finance.