Having a 401(k) Nearly Doubles Your Chances of a Comfortable Retirement, Vanguard Finds

Do you have access to defined contribution (DC) plans, such as a 401(k)? If so, you are more likely than your peers to meet your retirement goals. The Vanguard 2025 Retirement Outlook report dives more into these numbers, which show 54% of workers with DC plans on track, versus just 28% without.

Why is this a big deal? With most Americans not having enough retirement income from Social Security alone, those 401(k)s have to do more of the heavy lifting. Here's what it means to be on track, how to access a plan, and what to do if your workplace doesn't offer one.

What the experts mean by on track

You may have your own idea of what it means to be "on track," but Vanguard's retirement report spells out its method. It looks at whether you're projected to have enough income in retirement to cover expected spending, based on Social Security assumptions, savings rates, account balances, and investments. It's not measuring a perfect retirement, just whether you can replace a reasonable share of your pre‑retirement income.

Vanguard then looks across different ages and income levels to estimate what percentage of workers will meet or exceed that threshold if they stay the course.

How workplace 401(k)s change the game

Remember, the study reveals that access to a workplace retirement plan makes you 2x more likely to be ready for retirement. It does this by making it easier to save in several key ways. It:

• Automates contributions, which come straight from your paycheck
• Offers generous employer matches (in most cases)
• Gives default investment options, like target-date funds

These benefits are meaningful and move the needle on retirement readiness. Also, the study is heavily concentrated among people who can use these plans; it's fair to assume that expanding access could push even more Americans to be on track.

Does your employer offer a plan?

Not all private-sector workers have access to retirement plans at work, but you won't know unless you ask. Places you can go for more info include the employee handbook, hiring paperwork, or the Human Resources department. Your online employee benefits portal (if you have one) should also display the plans to which you have access and provide the necessary enrollment paperwork.

Not all workplaces offer a 401(k) specifically; they may offer a 403(b) or 457 plan, so look for these plan types, as well.

Turn on "easy mode" features

Once you verify you have access to a plan, find out what it takes to participate. Since the SECURE 2.0 legislation, employers typically must enroll new employees in a default contribution rate and auto-escalation.

The rules for 401(k)s state:

• Initial default rate of 3 to 10% of compensation; if you don't want to participate, you can select a 0% rate
• Rate escalation of 1% of salary per year to no less than 10%; if the initial rate is already 10%, no escalation is necessary; maximum of 15% of salary

These two automation features boost participation and help put away more for retirement. By sticking with these numbers, you may have higher average savings over time than if you set your own lower rates and remember to raise them when it feels right.

Build your own plan if necessary

If your employer doesn't offer a 401(k) or similar plan, or you work for yourself, it doesn't mean you're out in the cold. While the Vanguard findings estimate you're less likely to be on track, self-employed savers still have options.

Accounts you can open on your own include:

• Traditional IRA: Tax-deductible contributions for many people (subject to income and coverage rules), with taxes on withdrawals later.
• Roth IRA: Contribute after-tax money (subject to income limits), and get tax-free qualified withdrawals.

To get started, find a brokerage or robo-advisor, open an online account, and set up automatic monthly transfers from your checking account. Stay on top of the annual contribution limits set by the IRS to get the most out of your money.

More options for self-employed savers

If you freelance or run your own business, you may be able to open a solo 401(k) — or a "one-participant" plan. In this arrangement, you contribute as both the employee and the employer, so you may have a higher total contribution limit than with an IRA.

Start by applying for a solo 401(k) account with a provider that offers them, and choose your investment options. You'll then set a contribution percentage based on your income and schedule contributions throughout the year.

Bottom line

Vanguard's data makes one message very clear: You're better set up for success with a workplace plan. But while it's easier to save with one, it's not the only way. With IRAs and solo 401(k)s available as well, you have choices that aren't tied to traditional employment.

Perhaps more important than the type of retirement plan you choose is how you check your progress. Know how much you'll spend in retirement each year, along with your expected guaranteed income, to see the gaps your investments need to fill. Whether it's employer-supported or not, that's the number to beat to retire stress-free.