Financial management firm Vanguard publishes a new report, highlighting significant shifts in retirement planning that individuals should not disregard: Three key retirement trends to take note of
In a significant shift, the U.S. retirement landscape is witnessing a surge in automatic enrollment and contribution increases, as per the latest data and trends. This transformation is primarily driven by the SECURE 2.0 Act of 2022, which has mandated automatic enrollment for most new 401(k) and 403(b) plans established after the end of 2022.
According to Vanguard's recent report, "How America Saves 2025," the trend of automatic enrollment is on the rise. By 2024, 61% of plans have adopted this practice, with a staggering 78% adoption in larger plans (1,000+ participants). This shift has led to a record average savings rate of 7.7% of earnings in 2024, a marked increase from the previous years (2).
Automatic contribution increases, or escalation, are also becoming increasingly common. About 40% of plans automatically escalate contributions unless employees opt out. This practice has contributed to a significant increase in net contribution rates, with adding automatic escalation increasing net rates by 0.3% of income (2).
Key points about this trend include:
- SECURE 2.0 mandated features: Automatic enrollment at 3% minimum and automatic escalation by 1% annually up to 10–15% in most new plans since 2025 (3, 4).
- Increased participation: Plans with automatic enrollment achieve participation rates around 91%, compared to 28% with voluntary enrollment (5).
- Contribution rate impact: Automatic enrollment increases net contribution rates by about 0.6% of income; adding automatic escalation increases net rates by 0.3%, and implementing both simultaneously increases it by roughly 0.8% of income (2).
- Demographic expansion: More long-term part-time employees (500+ hours for two years) must be allowed to participate, expanding plan coverage (3).
- Additional trends: Roth after-tax contributions, professionally managed investment allocations, and plan features that aid participants’ investment decisions are also gaining traction (1).
However, despite these advancements, there are still challenges to be addressed. In 2024, 45% of participants did not raise their savings rates, and 10% either lowered their deferrals or stopped saving altogether, demonstrating ongoing challenges in balancing living costs with retirement savings (1).
Another noteworthy trend is the increase in the use of target-date funds. By 2024, 96% of retirement plans offer target-date funds, enabling participants to select a date that aligns with their retirement goal. Professional managers will automatically adjust the fund holdings over time to the proper level of risk (6).
Roth plans, while less common, are gaining ground. Despite 86% of plans offering a Roth option, only 18% of participants currently use them. Roth plans have different tax treatment compared to traditional plans, with contributions being taxed before investment and funds being withdrawn tax-free (subject to specific rules) (7).
The Secure 2.0 Act has also expanded the accessibility of Roth plans. It allows employees to choose to receive employer matching contributions after tax, and it does not require required minimum withdrawals during retirement, allowing funds to grow without taxes associated with RMDs (8).
In summary, automatic enrollment combined with gradual, automatic contribution increases is now a mainstream and expanding practice in U.S. retirement plans, driven by legislative mandates and leading to higher participation and savings rates among workers. However, a significant share of participants still does not increase their contributions annually, illustrating ongoing challenges balancing savings with living expenses.
It is essential to continue monitoring these trends and addressing the challenges to ensure that Americans are well-prepared for their retirement years.
Sources:
- Vanguard, How America Saves 2025
- Employee Benefit Research Institute, 2024 Retirement Confidence Survey
- U.S. Department of Labor, SECURE 2.0 Act of 2022
- IRS, Notice 2023-01
- Aon, 2024 Retirement Plan Participation and Savings Survey
- Investment Company Institute, 2024 Target-Date Fund Report
- Internal Revenue Service, Roth 401(k) Plans
- U.S. Department of Labor, SECURE 2.0 Act of 2022
- With the increase in automatic enrollment and contribution increases, personal finance during retirement is becoming more manageable for a significant number of Americans.
- Due to the SECURE 2.0 Act, the future of personal finance is expected to see increased investment in retirement plans, as most new 401(k) and 403(b) plans will adopt automatic enrollment features.
