Evidence More People are Using 401(k) Plans

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It's never too early to start saving for retirement. The magic of compounding rewards getting even a small amount money into a 401(k) or other account earlier, rather than waiting and missing out on years of accruing interest.

The youngest generation of workers get it. And so do those workers offered Vanguard retirement plans through their employers, according to a new report on the retirement behaviors of nearly 5 million Americans.

Vanguard participation spikes with auto-enrollment

Assets in 401(k) plans crossed $7.7 trillion earlier this year, which comes to nearly 20% of all U.S. retirement savings. Among them, Vanguard manages the third and fourth most popular workplace options in terms of retirement assets: Vanguard Target Retirement 2030 and Vanguard Primecap.

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That sizable footprint makes Vanguard's latest "How America Saves" report cataloguing 5 million Americans' retirement saving behavior an important commentary on the entire retirement landscape. The report, released on June 15, reveals that eligible employees participated in Vanguard 401(k) plans at an unprecedented rate in 2022, along with other key findings.

The 2022 participation rate of 83% tops all previous highs and marks an 8% increase from just 10 years ago. Vanguard attributes this gain in participation to a few factors, led by automatic employee enrollment, which has slowly replaced voluntary opt-ins.

The report explains that automatic enrollment has more than tripled since the passage of the Pension Protection Act law was passed by Congress in 2006. Today, nearly 58% of plans and 76% of plans with at least 1,000 participants have adopted this design, with notable results. Plans with automatic enrollment register a 93% participation rate, compared with 70% for plans with voluntary enrollment.

Savers ignore volatility, keep it simple

Market volatility was the name of the game in 2022. Still, despite uncertainty and a market-driven 20% drop in average account balances year-over-year, the report reveals that nearly a quarter of 401(k) participants saved at least 10% of their income for retirement. Nearly 98% of participants also offered some type of employer contribution, bringing the total average contribution rate to 11.3%.

Savers also continued the ongoing decline of active trading within their 401(k)s. Only 6% of plan participants traded within their accounts in 2022 – a drop of 4% from 2020. Vanguard recorded a 1% shift of assets into fixed income during the year. Most traders made only small changes to their portfolios.

Vanguard has observed a gradual decline in participant trading over the past 15 years, which it links to increased adoption of target-date funds. Notably, only 2% of participants with a single target-date fund executed their own trades within their 401(k)s during 2022.

Safest Vanguard funds for this market

While the economy is mostly holding up and inflation is slowly coming down, recession fears still linger as the Federal Reserve carefully balances its rate-hiking strategy. Once you've taken care of your 401(k) contributions, consider the following safe Vanguard funds that can incorporate useful defensive strategies and sectors into your taxable portfolio:

Vanguard Global Minimum Volatility Fund Investor Shares (VMVFX)
- Type: Minimum-volatility global stock
- Assets under management: $2.1 billion
- Dividend yield: 2.4%
- Expenses: 0.21%
Vanguard Health Care ETF (VHT)
- Type: Sector (Healthcare)
- Assets under management: $17.3 billion
- Dividend yield: 1.4%
- Expenses: 0.10%, or $10 annually for every $10,000 invested
Vanguard High Dividend Yield ETF (VYM)
- Type: Dividend stock
- Assets under management: $58.3 billion
- Dividend yield: 3.1%
- Expenses: 0.06%
Vanguard Ultra-Short Bond ETF (VUSB)
- Type: Ultra-short bond
- Assets under management: $3.4 billion
- SEC yield: 2.4%*
- Expenses: 0.10%
Vanguard Consumer Staples ETF (VDC)
- Type: Sector (Consumer Staples)
- Assets under management: $7.0 billion
- Dividend yield: 2.3%
- Expenses: 0.10%

Ben Demers manages digital content and engagement at Kiplinger, informing readers through a range of personal finance articles, e-newsletters, social media, syndicated content, and videos. He is passionate about helping people lead their best lives through sound financial behavior, particularly saving money at home and avoiding scams and identity theft. Ben graduated with an M.P.S. from Georgetown University and a B.A. from Vassar College. He joined Kiplinger in May 2017.