The 401(k) system has quietly transformed itself over the past quarter century, and that shift is paying off in spades for American workers.
Thats according to Vanguard's 25th annual How America Saves report, which drew on data from nearly five million participants across approximately 1,300 defined contribution plans.
Roughly three months after releasing its preview report, Vanguard confirmed that nearly every positive trend in the data came from the same driving force: plan design that removes the burden of decision-making from participants.
"More than 25 years of data and insights make it clear – strong default contribution options and automatic features have made saving for retirement more accessible and effective for more Americans than ever before," said Lauren Valente, managing director, Workplace Solutions at Vanguard.
The share of Vanguard plans using automatic enrollment reached 61% at year-end 2025, up from just 10% in 2006 when the Pension Protection Act took effect. The trend is stronger among larger plans with at least 1,000 participants, where adoption reached a record 79%.
Sixty-two percent of automatic enrollment plans now default participants at a deferral rate of 4% or higher – nearly half of those default at 6% or more – compared with just 43% of plans defaulting at 4% or higher in 2015. More than 70% of automatic enrollment plans also include automatic annual escalation features that gradually increase employee deferral rates over time.
The upshot has been a 94% participation rate in 2025 for plans with automatic enrollment, in contrast to just 64% in voluntary enrollment plans. Overall, the plan-weighted participation rate across all Vanguard plans reached a new record of 86%.
The total average contribution rate – combining both employee and employer contributions – held at 12.1% in 2025, a figure the report describes as an all-time high and nearly two percentage points above the rate recorded a decade ago.
Vanguard estimates that participants should target a combined contribution rate of 12% to 15% to save effectively for retirement. By its count, 51% of participants met or exceeded that threshold in 2025, up from 47% in 2021.
Mirroring trends seen by Fidelity, average account balances climbed 13% year over year to $167,970, while median balances rose 16% to $44,115. Among participants who held an account at both the beginning and end of 2025, the median balance increased 27%, with growth happening for a 94% majority during the period.
The disparity between average and median balances reflects a skewed distribution in savings. One in four participants carried a balance below $10,000, while 35% had balances exceeding $100,000 and 18% held $250,000 or more. Strong equity market returns – the S&P 500 gained approximately 16% in 2025, according to Vanguard's market data – contributed significantly to balance growth, alongside ongoing contributions.
Maybe not too surprisingly, balances tended to vary considerably by industry. Participants in the media, entertainment, and leisure sector had average balances of approximately $252,000, while those in transportation, utilities, and communications averaged just over $113,000.
In what's arguably the most structurally profound development in retirement investing, the data showed 69% of Vanguard participants were invested in a professionally managed allocation – meaning their entire account balance sits in a single target-date fund or balanced fund, or in a managed account advisory service – at year-end 2025, continuing an arc of progress starting with just 9% in 2005 going on to 48% in 2015.
Ninety-six percent of Vanguard plans offered target-date funds at year-end 2025, and 84% of participants used them when offered. Among the target-date investors, 73% held a single fund that aligned with their expected retirement date. Vanguard said TDFs now make up 45% of all assets within its plans offering such strategies, compared to 28% in 2016, and 64% of all plan contributions gravitated into those funds last year.
As a result, the report said participant portfolios have seen a dramatic increase in quality over the past 20 years. In 2025, only 2% of participants held no equities at all – down from 13% in 2006 – and just 2% held more than 20% of their balance in a single company's stock, compared with 18% in 2005.
The report also featured a side-by-side comparison extreme equity positions – either 0% or 100% – among do-it-yourself investors and those relying on professionally managed allocations. While 24% DIYers classified into the all-or-nothing stock camp, just 8% of outsourcing investors showed such extremes.
For all the excitement around the role of company stock in retirement wealth, only 8% of Vanguard plans offered company stock as an investment option.
Among all participants, 93% had no company stock holdings at all – either because their plan did not offer it or because they chose not to invest in it. Just 2% held a concentrated position of more than 20% in company stock, down from 6% in 2016. Plans that made employer contributions in company stock averaged 19% of plan assets in that option, compared with just 6% for plans offering company stock but contributing employer funds in cash.
And despite the post-Liberation Day tariff volatility in the spring of 2025, only 5% of non-advised participants made any trades during the year, matching the prior year's record low. The holding behavior was more pronounced for participants invested solely in a single target-date fund, among whom just 1% traded.
By Vanguard's estimates, the average one-year participant total returns reached 19.3% in 2025, while personalized returns averaged 17.9% for the same period. Five-year annualized returns averaged 9.0% on both a total and personal return basis.
In a sign of rising stress, 6% of participants initiated a hardship withdrawal in 2025, up from 5% in 2024 and 2% before the COVID-19 pandemic. At least part of that could be due to expanded eligibility rules and plan design changes that make withdrawals more accessible, according to Vanguard, aside from higher household debt levels and elevated mortgage rates.
"While the progress and participant outcomes are significant, they also highlight where we need to go next," Valente said. "Continuing to strengthen the system means helping Americans manage short-term financial pressures while staying on track for long-term retirement security."
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