Retirement

The state of retirement in five figures

October 16, 2023

retirement outlook illustration

The week of October 15 is National Retirement Security Week―a good time to take stock of the state of retirement in the United States. There is much to celebrate but still more work to do!

About half of all Americans have access to a workplace retirement plan, and those who do may be well on their way to securing sufficient retirement savings. But not everyone has access to a plan.
This chart shows that only 50% of private-sector workers participate in a workplace retirement plan, while 82% of government workers participate in a workplace retirement plan.

Source: U.S. Bureau of Labor Statistics, 2021.

Key interventions can better prepare workers for a secure retirement. We are seeing great progress in plans adopting such features.
This chart shows the growing popularity of key interventions in retirement plans that can better prepare workers for a secure retirement. Among Vanguard-administered retirement plans, 95% offer employer contributions to participants, 88% offer Qualified Default Investment Alternatives (QDIAs), 66% offer professionally managed allocations, and 58% offer autoenrollment. Of those plans offering autoenrollment, 69% have an autoescalation feature.

Source: Vanguard, How America Saves 2023.

However, some who have access to a plan may not be taking full advantage.
This chart shows that retirement plan participation rates are dramatically higher for plans that autoenroll their participants. Ninety-one percent of participants in plans that have an autoenrollment feature are saving for retirement in these plans. For plans that have voluntary enrollment, only 28% are saving for retirement in these plans.

Source: Vanguard, Automatic enrollment: The power of the default. 

When retirement readiness is assessed at the national level, the outlook is mixed. High-income workers―those in the top 5% of the income distribution―can readily finance their retirement. But low-, middle-, and upper-income workers who have annual earnings in the 25th, 50th, and 70th percentiles of the national income distribution may be unable to meet the spending levels typical of today’s retiree. Lower- and middle-income workers struggle to achieve readiness and upper-middle-income workers on average fall just short of a sustainable retirement.

Like other age cohorts, high-income families are the only income group among millennials with a sustainable replacement rate that more than meets their spending needs.
This chart shows how prepared for retirement millennials at different income levels are. High-income families, or those at the 95th income percentile (i.e., those with median income of roughly $173,000), have a sustainable replacement rate (85% of income) that more than meets their spending needs (43% of income) in retirement, while everyone else falls short. Upper-middle-income millennials reach a sustainable replacement rate of 66%, just about meeting their spending needs in retirement (68%). With a sustainable replacement rate of 64%, lower-income millennials fall well short of meeting their retirement replacement needs of 96% of income.

Notes: Lower-income millennial workers are those in the 25th percentile of the income distribution (median income of roughly $22,000). Upper-middle-income millennials are those in the 70th percentile of the income distribution (median income of roughly $61,000). Higher-income millennial workers are those in the 95th percentile of income (median income of roughly $173,000). The sustainable replacement rate is the percentage of pre-retirement income that a worker can replace throughout retirement in 90% of market and mortality scenarios.

Source: The Vanguard Retirement Outlook: A National Perspective on Retirement Readiness.

But the overall outlook is a bit brighter for younger generations in most income groups.
The overall outlook is a bit brighter for millennials in most income groups. For the lowest-quartile income level, they have a 64% replacement rate, compared with 63% for Generation X and 64% for baby boomers. For the lower-middle-income level (50th income percentile), millennials’ replacement rate is 58%, compared with 52% for Generation X and 50% for baby boomers. For the upper-middle-income level (70th income percentile), millennials have a 66% replacement ratio, compared with 53% for Generation X and 51% for baby boomers. And for the highest income level (95th percentile), millennials have a sustainable replacement rate of 85%, compared with 75% for Generation X and 63% for baby boomers. All three generations in the highest income level are meeting their spending needs in retirement.

Source: The Vanguard Retirement Outlook: A National Perspective on Retirement Readiness.

1 Participants with professionally managed allocations have their entire account balance invested in a single target-date or balanced fund or in a managed account advisory service.

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Notes:

All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the work force. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a target-date fund is not guaranteed at any time, including on or after the target date.

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