Americans' retirement savings surged by 19%: Vanguard report

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A recent report from the Vanguard Institute reveals a significant uptick in retirement savings, with average balances for American retirees increasing by 19% compared to 2022 data. Notably, more than four out of 10 individuals boosted their contribution amounts to their 401(k) accounts.

Yahoo Finance personal finance contributor Kerry Hannon breaks down the study, examining the factors driving this positive trend in retirement savings.

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This post was written by Angel Smith

Video transcript

We’ve all heard Americans are struggling to save for retirement, but are they the average retirement account balance increased by 19% last year?

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That’s compared to 2022 and more than four in 10 people raised the amount of money they set aside into their 401k accounts according to a Vanguard report to discuss the study.

Yahoo Finance’s very own carry.

Hannon is here.

Hey, Carrie.

Hey, Brad, great to be here.

Yeah, I mean, we all hear so much doom and gloom about people not saving enough for retirement or being woefully behind that.

This just was very encouraging to see uh Vanguard take a look back at 2023 and they saw some really positive optimistic trends, people were saving more and people were contributing more to their accounts.

And so, you know, let’s break down what this happened.

Uh What, what sort of is behind all of this and the biggest trend is auto and in auto escalation and what that means is employers automatically put people into their, their um employer provided retirement account, their 401k and then they raise it up each year.

So it kind of gets away from that inertia of people not making that decision to get rolling and to increase the amount, this has done a huge amount in pushing people to save more.

And I think it’s a really great trend, employers have also doubled the amount uh that they contribute as a match, uh, to 4% or more.

It used a decade ago.

It was about half of that.

So that’s fantastic.

Um, news as well.

And the second thing that’s behind it, Brad in many ways is target funds.

I mean, target funds have become, you know, they absolutely rule the day now and most people are in these target funds which as, as the listeners know and the viewers know it’s set and forget, right, you, you make your investment and then as the markets go up and down and as you age, they gradually reduce your risk, say you say you’re gonna retire in 2035 then as you get towards that date, it goes from equities down to more fixed income and it really helps people not trade as much, which is quite good for these accounts because there’s not a lot of shaking up.

And for younger workers, vanguard um has found that it’s super helpful because they used to be not um invested enough in equities.

And so as a result, they lost out on growth and this helps them get in at a better, a better sort of composition of their retirement account for their future.

So that’s great news.

They um another study I looked at transamerica showed that, you know, younger workers are actually starting to save for retirement at age 20.

Gen Z and that compares to 25 for millennials.

And, you know, uh uh Gen X started at 30 or so.

So we’re seeing a movement to start saving earlier, which I absolutely love.

Um Now, before I get too crazy, I gotta say there was one sort of caveat to the, the Vanguard report I need to mention is that more people than ever uh rated their retirement account.

So this is a small percentage, but I’ve got to tell you it’s worth looking at and a concern and they did it mostly probably prompted by inflation for medical bills and housing expenses.

But as we know, if you do that, if you buy, if you withdraw from your retirement account for these things, and there are some exceptions to this rule, but, but you generally are, if you’re not 59.5, you’re gonna pay a 10% penalty and you’re gonna pay tax and that money is gone.

So those are just a couple of things that, that, that kind of percolated out of that.

And my final point is that even though I’m so excited to see these positive numbers for once, the fact is half of Americans still do not uh who work in the private sector do not have access to an employer provided retirement plan.

And what that means is they really do have to voluntarily, you know, jump in and get going.

Carrie Hannon, a lot of gems from that study.

I appreciate you breaking it down for us.

Thanks so much, Carrie.

Thanks Brad.