A new report shows that when it comes to retirement, many Americans are taking one step forward, and taking two steps back.
Show Introduction and Vanguard Report Overview
Every year for the past 25 years, the Vanguard Group has produced a report entitled How America Saves. It’s a look at the financial behaviors of the millions of participants in the thousands of 401k plans that Vanguard administers.
Rising 401k Participation and Contribution Rates
Some of the key 2025 findings suggest that Americans are saving more for retirement. The participation rate in Vanguard 401k plans was 86%, up 5 percentage points since 2017. The average contribution rate is 7.6%. Including both the employee contribution and the employer match, the average rate is 12.1%.
Automatic Enrollment and Annual Increase Plans
The study chalks it up to the rise in automatic enrollments. 61% of their plans provided that in 2025, compared to just 10% in 2006. 71% of auto enrollment plans, also include automatic annual increases.
Job Separation and 401k Distribution Retention
The report also found that when an employee leaves their job, they are hanging on to their money. In 2025, about one-quarter of all Vanguard participants were eligible to take a distribution because they had separated from service. 83% of them either kept their funds in the plan, rolled it to an IRA, or rolled it to their new employer plan. The other 17% that cashed out their 401k, only made up 3% of the total assets available for distribution. So, while there may have been a large number of people cashing out, they were mostly small accounts.
Record Hardship Withdrawals and Five-Year Trend
But, just as Americans are saving more, they are also withdrawing more. The report found a record number of participants made hardship withdrawals in 2025. 6% took money out of their 401k, up from 5% in 2024, and it’s been increasing for the past 5 years.
Policy Changes and Corporate Accessibility
The top three causes were to avoid home eviction, medical expenses, or home repairs. You can chalk that up to new laws that provide more qualifying reasons for a hardship withdrawal, and because companies have made it easier.
Retirement Planning: Moving Beyond Peer Comparison
We are asked often in the meeting room, How are we doing, compared to everyone else you work with? Respectfully, that’s the wrong question to be asking. Your friend, your neighbor, your family members are all on their own unique journey to financial independence. Comparison to what the average 401k participant is doing should not be your measuring stick for how you are doing.
Personal Financial Planning: From Saving What You Can to Saving What You Should
The right savings rate, the right asset allocation, all depend on your financial plan. What asset target to you need to hit, at what age, and most importantly, how much retirement income that will provide you in retirement, are the questions you need answers to. That helps you move from saving what you can, to saving what you should.
Securities are offered through LPL Financial, Member FINRA/SIPC. GenWealth Financial Advisors is an other business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance, LLC, a registered investment adviser. Independent Advisor Alliance, LLC is a separate entity from LPL Financial.
