The Growing Divide in Retirement Readiness

A new Retirement Outlook report from Vanguard paints a troubling picture for millions of Americans approaching retirement age. According to the analysis, roughly six in ten workers are not financially on track to sustain their lifestyle after leaving the workforce. The disparity between generations is widening: baby boomers and older Gen Xers are the least prepared, while millennials and younger Gen Xers are in relatively stronger shape.

Vanguard’s findings, based on data from the Federal Reserve, the Social Security Administration, and the Society of Actuaries, indicate that only the top 30% of income earners aged 61 to 65 — those earning between $67,000 and $436,000 annually — are ready for retirement. The rest are expected to rely heavily on Social Security, whose trust fund is projected to be depleted within eight years unless legislative changes are made.

“The definition of a successful retirement is personal and varies,” said Fiona Greig, Vanguard’s global head of investor research and policy. “A common goal is sustaining one’s lifestyle in retirement, so we define retirement readiness as having enough wealth to support a comparable level of spending in retirement.”

Why Younger Generations Are Doing Better

In contrast, younger generations — particularly millennials and late Gen Xers — are faring better thanks to modernized retirement systems. They have benefited from broader access to employer-provided defined contribution (DC) plans, such as 401(k)s, which became standard in the late 1990s and 2000s.

Key design improvements like automatic enrollment and annual contribution escalation have significantly boosted participation and savings rates. Today, about 60% of DC plans include auto-enrollment, up from just 10% in 2006, while one-third feature a default contribution rate of 6% or higher. The median plan participant now contributes over 11% annually — a substantial improvement from prior decades.

Additionally, the rise of target-date funds has simplified retirement investing. These funds automatically adjust asset allocations from equities to bonds as the retirement date nears, providing a balanced, long-term approach for savers with limited investment expertise. Nearly all 401(k) sponsors and most state-level retirement savings programs now use target-date funds as their default option.

The Consequences of Unequal Access

Despite these gains, structural gaps remain. Roughly half of U.S. workers — particularly those in small businesses or gig roles — lack access to any employer-sponsored retirement plan. Vanguard found that workers with DC plan access are twice as likely to meet their retirement savings goals compared to those without, 54% versus 28%. If universal plan access were achieved, overall national retirement readiness could rise to 61%.

To bridge this gap, 17 U.S. states have implemented or enacted automatic Roth IRA programs designed to help employees at smaller firms save for retirement. “The U.S. retirement system has a strong foundation,” Greig noted, “which continues to improve as employers expand plan access and implement stronger design features.”

Still, Vanguard’s report includes a sober warning. The outlook is more pessimistic than in previous years because researchers factored in higher household debt levels, lower investment allocations to equities, and excluded home equity from total wealth calculations — all of which paint a grimmer picture of long-term financial stability.

How Americans Can Regain Financial Security

For baby boomers and Gen Xers nearing retirement, unlocking home equity or extending their working years may be the most practical solutions. Vanguard estimates that working just two years longer — until age 67 — could add 13 percentage points to overall retirement readiness by boosting savings, delaying Social Security claims, and shortening the years spent drawing down assets.

Already, about 20% of Americans aged 65 and older remain in the workforce, a figure projected to grow as education, health, and job flexibility improve. “Working two years longer results in higher lifetime savings and fewer years of retirement to fund,” Greig explained.

As policymakers and employers explore ways to strengthen retirement security, one thing is clear: America’s retirement challenge is as much about access and behavioral design as it is about income. For those willing to adapt, the tools for a more secure future are already emerging — but time is running out for those nearing the finish line.