Workers saved for retirement in 401(k)s and other employer-sponsored plans at a record rate last year, and the average account balance rose nearly 20% thanks largely to a strong stock market.
According to new data from Vanguard, the average deferral rate among plan participants was 7.4% in 2023, tying the previous all-time high in 2021. Counting employer contributions, the average contribution rate was 11.7%, also a record.
The investment management company’s annual “How America Saves” report analyzes data on nearly 5 million workers’ retirement accounts, which include 401(k)s, 403(b)s and a small number of other plans. The 100-plus page report provides a detailed picture of retirement savings trends.
“2023 was a year of progress,” John James, managing director and head of Vanguard’s institutional investor group, said in the report. “Despite stubborn inflation, plan participation and participant saving rates reached all-time highs.”
James noted that more plans now have automatic enrollment, which is contributing to the increase in participation and savings rates. The share of plans that automatically enroll workers is up to 59%, compared to 50% in 2019.
Millions of workers use 401(k)s to save, and the tax advantages make them a powerful tool for retirement. These plans allow employees to contribute pre-tax income to their accounts and invest the money in funds or other options. Savings are not taxed until you take withdrawals, which is favorable assuming you’ll be in a lower tax bracket when you need the money in retirement.
401(k) contributions and balances rise
Vanguard reports that a record number of participants increased their account contribution rate in 2023. The share that made an upward adjustment was 43%, “driven in part by plan design features like automatic annual savings increases,” according to the report.
The average account balance was $134,128 last year, an increase of 19% from the prior year. The growth, driven by strong stock market performance, was much-needed good news for retirement savers after 2022 went down as the worst year for retirement account performance since the Great Recession.
Average retirement account balance by age
If you’re wondering how your retirement savings stack up for your age group, here’s a breakdown of the average Vanguard account balances in 2023:
- Under 25: $7,351
- 25 to 34: $37,557
- 35 to 44: $91,281
- 45 to 54: $168,646
- 55 to 64: $244,750
- 65 and up: $272,588
While the increases in savings rates and balances are positive developments, many Americans are still behind on saving for retirement.
According to a separate survey from Schroders released Tuesday, 29% of workplace retirement plan participants expect to retire with more than $1 million in their accounts. But as the data above indicates, average balances are far off that level.
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