Indexing: The engine powering retirement in America

As employers increasingly offer DC benefits, more than half of American workers have an easy, streamlined way to save for their retirement.¹ Workers with DC access are almost twice as likely as those who don’t to reach their retirement savings goals.²

By removing barriers to saving and investing through features such as autoenrollment and automatic escalation, along with default investment options like TDFs, millions of workers start saving and investing with little effort. They put $800 billion in savings into DC plans in 2024.³ The U.S. retirement system now has $14 trillion in DC assets and another $19 trillion in IRA assets, which are mostly funded by rollovers from DC plans.⁴  

A critical enabler in building this enormous scale has been the widespread adoption of index TDFs. A few data points illustrate their prevalence today among investors saving for retirement: 

• Nearly all Vanguard record-kept plans had a designated default fund in 2024, and for 91% of those plans, it was a TDF. In 2015, only about 1 in 10 plan sponsors had designated a money market fund or a stable value fund as the default option.⁵

• The importance of TDFs continues to grow as new savings into DC plans are increasingly being directed to TDFs. In DC plans, about 65% of new savings are now flowing into TDFs, and that figure is expected to grow to roughly 70% by 2030.⁶

• Index TDFs accounted for about 60% of total target-date assets in 2024.⁷

For retirement plans designed to serve millions of participants, indexing solves a specific structural challenge: how to deliver broad market exposure, low costs, and good investment outcomes over a long retirement planning horizon at scale.

Indexing is a strategy that relies on market participation in a simple and transparent way:

• Diversification, built in. Index TDFs offer instant exposure to hundreds or even thousands of securities, spreading risk across companies, sectors, and regions. Replicating that diversification directly would be out of reach for most investors
  $3.2 million: That is about how much it would cost an investor to own at least one share of every company in the Standard & Poor’s 500 Index while maintaining market‑capitalization weights.⁸ Index funds make that market access broadly available to virtually all investors at scale.

• Low cost, by design. Because index funds aim to track markets rather than trade frequently, they tend to have lower expenses than actively managed funds. Those lower costs increase the share of returns that investors keep.
  $570 billion: That’s our estimate of how much index funds could have collectively saved investors in fees from 2000 through 2025.⁹
  The potential for fee savings is even greater in DC plans where investors can invest in collective investment trust (CIT) vehicles, which are cheaper than mutual funds available to retail investors. About the same amount of TDF assets are in CITs as are in mutual funds.¹⁰

• Compounding, over time. Index investing is grounded in a long‑term philosophy that doesn’t require constant attention or precise timing. With regular contributions and long investment horizons when investors are saving for retirement, returns have the potential to build on themselves.
  $2.0 million: Roughly what a hypothetical $10,000 investment in 1976 in what is now the Vanguard 500 Index Fund could have grown to by March 31, 2026, illustrating how sustained market participation in an index fund can translate into long‑term growth.¹¹

For decades, indexing has quietly done heavy lifting for millions of Americans striving to reach their retirement goals—supporting broad participation in markets, keeping costs low, and reinforcing disciplined, long‑term investing. It’s a reminder that retirement readiness isn’t built overnight, but through patient, consistent steps—year after year.