Key Takeaways:
Vanguard's 25th annual How America Saves report lays out two versions of retirement in America. The average 401(k) balance across nearly 5 million participants reached a record $167,970 at year-end 2025, up 13% from the prior year on the back of strong equity returns. The median balance — the midpoint where half of savers have more and half have less — was $44,115.
"The retirement savings system has shifted from one reliant on individual action to one powered by defaults, helping lift participation from 65% to 86% and pushing total savings rates to record highs," David Stinnett, head of strategic retirement consulting at Vanguard, said.
At a standard 4% annual withdrawal rate, the median balance generates $1,765 a year — or $147 a month. That compares with the $1.46 million Americans told Northwestern Mutual they believe they need to retire comfortably, a gap of roughly 33-to-1. Fidelity's guideline of 10 times salary by age 67 would require $600,000 for a $60,000 earner, more than 13 times the median.
The gap between the average and median reflects a heavily skewed distribution. One in four participants held a balance below $10,000, while 35% had more than $100,000 and 18% held at least $250,000. The S&P 500's 16.9% gain in 2025 lifted balances broadly — 94% of participants who held accounts at both the start and end of the year saw their balances increase, with the median gain at 27%.
The Auto-Enrollment Engine
Plan design, not individual initiative, drove the gains. The share of Vanguard plans using automatic enrollment reached 61% in 2025, up from 10% in 2006 when the Pension Protection Act took effect. Among larger plans with at least 1,000 participants, adoption hit 79%. Plans with automatic enrollment posted a 94% participation rate, versus 64% for voluntary-enrollment plans.
Sixty-two percent of automatic-enrollment plans now default participants at a deferral rate of 4% or higher, with nearly half of those at 6% or more. More than 70% include automatic annual escalation features. The average total contribution rate — combining employee and employer contributions — held at 12.1%, an all-time high and nearly two percentage points above the rate a decade ago. Vanguard recommends a target of 12% to 15%; 51% of participants met or exceeded that threshold in 2025, up from 47% in 2021.
The shift toward professionally managed allocations has also accelerated. Sixty-nine percent of participants held their entire balance in a single target-date fund, balanced fund, or managed account at year-end 2025, up from 9% in 2005. Among participants using target-date funds, 73% held a single fund aligned with their expected retirement year. Only 5% of non-advised participants made any trades during the year, matching a record low.
Hardship Withdrawals Hit a Record
The positive trends coexist with rising financial stress. Six percent of participants made a hardship withdrawal in 2025, the highest share in the report's history and up from 5% in 2024 and 2% before the pandemic. The median withdrawal was $1,900. More than a third of hardship withdrawals were used to avoid foreclosure or eviction, followed by medical expenses at 30% and home repair.
The increase reflects both genuine financial strain and easier access. Only 10% of plans still require documentation to verify hardship, down from near-universal documentation requirements a decade ago. Nearly half of participants who took a hardship withdrawal took more than one, suggesting some are using their 401(k) as an emergency fund.
A June 2026 survey by the Investment Company Institute found that nearly half of all Americans with a 401(k) say they probably would not be saving for retirement without their workplace plan. For the tens of millions of workers whose employers offer no plan — or a plan without automatic features — the system's progress has largely passed them by.
This article is for informational purposes only and does not constitute investment advice.
