Vanguard report reveals gaps in US retirement readiness
Fewer than half of Americans are financially prepared to maintain their standard of living after they stop working, according to Vanguard‘s Retirement Outlook.
The study, released Tuesday, highlights both progress and persistent gaps in the nation’s retirement readiness. It found that just 42% of U.S. workers are on pace to sustain their lifestyle in retirement.
Access to employer-sponsored defined contribution (DC) plans such as 401(k)s remains the single biggest factor driving financial security in later life. The report said that workers with such plans are nearly twice as likely to reach their retirement goals as those without them.
“Defined contribution plans play a critical role in building a stronger retirement system,” the report said. If every worker had access to one, the investment management group estimated, six in 10 Americans would achieve retirement security.
The study, based on data from the Federal Reserve, Social Security Administration and Vanguard’s own modeling, examined four generations of workers: baby boomers, Generation X, millennials and Generation Z.
The study found that younger groups appear better positioned than their parents, largely because of wider access to workplace plans and improved plan design. But if all workers had access to a defined contribution plan, Vanguard estimated that retirement readiness among Gen Z could nearly double, while the share of millennials on track would rise from 42% to 71%.
While many younger workers carry heavy debt loads — especially student loans, which could hamper long-term savings — they also show promise: Nearly half of Gen Z workers are projected to be ready for retirement compared with 40% of baby boomers.
Vanguard’s report acknowledged that the U.S. retirement system’s foundation has strengthened over the past two decades as employers expanded retirement benefits and Congress enacted laws such as the Pension Protection Act of 2006 and the SECURE Acts of 2019 and 2022.
But disparities remain. Among baby boomers nearing retirement, readiness is concentrated among the top 30% of earners. Low- and middle-income boomers are expected to rely heavily on Social Security, which faces its own financial challenges and is projected to be depleted by 2033. This could lead to reductions in benefits of about 23% without legislative action.
For older Americans falling short of savings targets, Vanguard said unlocking home equity either by downsizing, relocating or taking advantage of a reverse mortgage could help bridge funding gaps.
The study also suggested that extending careers by two additional years, until age 67, would lift the national share of retirement-ready Americans by 13 percentage points, primarily by allowing more time to save and by increasing Social Security benefits through delayed claims.