For decades, the 401(k) has been hailed as the backbone of the American retirement system. But while millions of Americans dutifully contribute to these employer-sponsored plans each year, the numbers reveal a quieter truth: most workers are saving far less than they could — and arguably far less than they should.
According to a 2023 analysis by Vanguard, which oversees retirement plans for more than five million Americans, the average employee contribution rate sits between 7% and 8% of salary. But averages can be misleading. The median contribution — a more accurate reflection of what typical workers set aside — is closer to 4%, a far cry from the 15% (including employer contributions) that many financial experts recommend.
“The 401(k) system is a powerful tool — but it works best for people who have steady incomes, long careers, and access to employer matches,” said Dr. Evelyn Moore, a retirement policy expert at the Brookings Institution. “For everyone else, it’s patchwork at best.”
A Retirement Landscape Marked by Disparity
In theory, the 401(k) allows Americans to build a retirement nest egg slowly over time. In practice, the benefit — and the behavior — varies sharply by age, income, and education.
Younger workers, facing student loan debt, high housing costs, and wage stagnation, tend to contribute the least. Workers under 25 put away just 5.1% of their salary on average. Meanwhile, those in their 50s — often playing catch-up — contribute over 10%.
Here’s how contribution rates and balances shake out by age:
| Age Group | Average Balance | Average Contribution Rate |
|---|---|---|
| Under 25 | $5,236 | 5.1% |
| 25–34 | $30,017 | 6.6% |
| 35–44 | $76,354 | 7.5% |
| 45–54 | $142,069 | 8.5% |
| 55–64 | $207,874 | 10.1% |
| 65+ | $232,710 | 9.6% |
The wealth gap becomes even more visible when looking at actual dollar contributions. Despite generous tax incentives and higher limits — $23,000 for 2024, plus a $7,500 catch-up allowance for those 50 and older — only a small minority of Americans contribute the maximum.
Instead, the average annual contribution is closer to $7,000–$8,000. That might be enough for some, but for many, it’s a slow crawl toward retirement security in a world where defined-benefit pensions are nearly extinct and Social Security faces long-term funding questions.
Employer Matches: Helpful, But Often Undervalued
Employers commonly match contributions — typically up to 3% to 5% of salary — offering workers “free money” for retirement. But millions of Americans still don’t contribute enough to receive the full match. Behavioral inertia, low default rates, and financial stress all contribute to missed opportunities.
While legislation like the SECURE Act has made automatic enrollment more widespread, many companies still set default savings rates at just 3% — barely enough to stay afloat, much less build wealth.
“Auto-enrollment helped bring people into the system,” said Moore. “But auto-escalation — gradually increasing the contribution rate — is the next frontier.”
A Fragmented System With Gaps
Roughly 60% of eligible workers now participate in a workplace retirement plan. But eligibility remains a significant barrier: low-income workers, gig workers, and employees at small businesses are disproportionately left out.
“In America, your ability to retire comfortably is often tied to who your employer is,” said Dr. Jamal Grant, a labor economist at UCLA. “If you work for a major corporation with a 401(k) plan, you’re in the game. If you drive for Uber or work retail part-time? You’re largely on your own.”
And even among those who do participate, gaps in financial literacy and inconsistent contribution habits mean that many Americans approach retirement with a fraction of what they’ll need.
The Clock Is Ticking
America’s retirement savings shortfall — estimated in the trillions — is not just a personal issue. It’s a looming public challenge that will reshape government policy, labor markets, and social safety nets in the decades to come.
Still, experts say there’s hope in small steps. “If a worker increases their contribution by just 1% each year, starting in their 30s, it can dramatically boost their retirement savings by age 65,” said Moore. “The math is on their side — but time is not.”
In the end, the story of the 401(k) is one of possibility and uneven progress. It offers a pathway — but not a guarantee — to a dignified retirement. And for millions of Americans, the question remains: are they on track, or just treading water?