Decumulation still lags as retirees lean heavily on DC plans, Vanguard report reveals

American workers are saving better than ever, but the transition to spending remains the retirement system’s weakest link.

Defined contribution plans now cover more than 100 million Americans and hold more than $12 trillion and Vanguard’s 2025 How America Retires report is a reality check on the modern retirement ecosystem.

Auto-enrollment, target-date funds, and rising contribution rates have pushed participation to historic highs, but once participants retire, the strong structure guiding their saving years gives way to a far more individualized and daunting decumulation phase.

Retirees must navigate a maze of decisions with retirement income planning requiring weighing tax exposure, health and longevity risks, lifestyle expectations, and household assets. Many retirees struggle to shift from building balances to drawing them down and the report highlights the value of guidance with 86% of respondents reporting greater peace of mind when working with an advisor.

"Turning savings into income is one of the most important and complex steps in retirement planning," said Lauren Valente, Managing Director of Vanguard Workplace Solutions. "That's why we're proud to launch How America Retires and provide a roadmap for building resilient, income-generating strategies that support retirees throughout the next phase of their lives."

Another early decision is whether to keep assets in the employer plan or move them to an IRA. Considerations include institutional pricing, fiduciary oversight, stable value options, withdrawal flexibility, and convenience, with these factors varying widely across plans.

Across retirees from 2021 through 2024, about half stayed in their plan during their retirement year, while roughly a quarter remained after three years. Rollovers dominated among higher-balance participants, whereas cash-outs typically involved small balances around $7,000.

In 2024, 68% of plans offered installments and 43% allowed ad hoc withdrawals - both sharp increases over the last decade. Retirees with these features were 35% more likely to stay and 15%–25% less likely to cash out. They also retained substantially larger balances than peers in less flexible plans.

In a five-year review, half of retirees took withdrawals, but steady annual drawdowns were uncommon; only one-fifth consistently withdrew moderate amounts each year.

Sponsors are turning toward income solutions. With more retirees keeping assets in-plan, sponsors are reassessing their role after participants stop working. Advice offerings are growing, with nearly eight in ten participants now having access to a managed account program.

Target-date funds remain the dominant default, but a new generation of hybrid annuity TDFs aims to support both accumulation and income. These products blend a traditional glide path with an income-funding component that prefunds an annuity purchase near retirement, offering guaranteed income at the cost of reduced wealth accumulation. They may appeal most to those concerned about longevity or market-timing risk.

Flexible fixed income lineups, scenario-modeling tools, and “paycheck” calculators are also gaining attention as sponsors recognize retirees’ need for clearer guidance around safe withdrawal levels and spending sustainability.

With nearly one-quarter of retirees still in their plans three years after leaving the workforce, and many unsure how to begin drawing down assets, the next phase of plan evolution will center on income, flexibility, and practical guidance.