In our recently published research paper, The Vanguard Retirement Outlook: A National Perspective on Retirement Readiness, we noted that projected income falls well short of spending needs for all but the highest-income workers in retirement. A median-income worker in the baby-boom generation faces a 33-percentage-point gap between projected income and spending needs in retirement.¹

The retirement readiness outlook is slightly brighter for the millennial generation, but we still see big savings gaps for the bottom half of the income distribution. We saw no gains in retirement readiness for low-income families (at the 25^th income percentile).

As a professional researcher, I’m trained to ask questions, and these findings provoked several. Why are we seeing improvement in retirement readiness for some but not others? How can we improve retirement security for lower-income families?

Our work confirmed that most of the assets of lower-income families are in cash accounts and not invested in the market. In fact, 4 in 10 Americans are not invested at all in capital markets.² This matters because investing in an age-appropriate allocation, such as a target-date fund, can dramatically improve retirement readiness.³

Employer-sponsored plans are often a worker’s entry point into investing. It’s well-documented that workers who participate in and are able to stay in well-designed plans have a greater chance of funding retirement.

But not everyone has access to or stays in a well-designed plan throughout their adult lives. In fact, roughly half of U.S. families don’t have access to workplace retirement plans.⁴

We need to work on solutions that help workers maintain their savings and investment allocations as they transition between jobs and seasons of life.

The retirement savings journey is not linear, even for those with access to retirement plans. Many will face job changes, periods of unemployment, and competing financial priorities that may interrupt or slow their ability to save.

This may be particularly true for lower- and middle-income workers who may face more income volatility and more difficulty saving than higher-income earners and, as a result, won’t enjoy the full benefits of compounding in their retirement investment portfolios.

We know good plan design has had an impact. According to How America Saves, in 2022 we saw record levels of participation rates in retirement plans (85%), savings rates (7.4%), and use of professionally managed, age-appropriate allocations.⁵

Interventions such as autoenrollment, autoescalation, and default investment options are no doubt critical in furthering this progress. These options can benefit lower-income workers. For example, for employees earning less than $30,000 whose workplace plans include automatic enrollment, the participation rate was more than 45 percentage points higher than for those whose plans have voluntary enrollment. For employees earning more than $30,000, the participation boost from automatic enrollment was considerably smaller.⁶

The next frontier of plan design could help meaningfully move the needle on retirement readiness for lower- and middle-income workers. Figuring out what that looks like is no small task.  

Americans are a diverse group. High-income workers have different needs and considerations than lower- and middle-income workers. We need solutions that not only encourage saving, but also broaden access to retirement savings vehicles and help people get and stay on track for a financially secure retirement.

Those solutions are likely to be found somewhere at the intersection of public policy and private-sector innovations. Everyone has a role to play. 

• The Vanguard Retirement Outlook: A national perspective on retirement readiness (31-page PDF, issued October 2023)
• The state of retirement in five figures (infographic, issued October 2023)
• How America Saves 2023 (115-page PDF, issued June 2023)