Most Americans know they should be saving more for retirement. Most are not doing it.
In 2025, the same costly patterns repeated themselves across millions of accounts. Staying stuck at default contribution rates. Cashing out during job changes. Ignoring rules that could have saved thousands in taxes.
The data from Vanguard and AARP tells a clear story. Progress is happening, but slowly. The mistakes still being made are expensive enough to alter retirement outcomes by decades.
Staying stuck at the default contribution rate
Auto-enrollment has been one of the biggest wins in retirement savings. Getting workers into a plan automatically has driven participation rates to record highs. But auto-enrollment has a problem: the default rate is often too low.
According to the same Vanguard’s research, 62% of plans with auto-enrollment defaulted workers in at 4% or higher in 2025. That sounds promising. But most employer matches require 6% contributions to unlock the full benefit. Workers enrolled at 3% or 4% and left there are leaving free money behind every pay period.
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The fix is straightforward but easy to overlook. Log into your plan, find your contribution rate, and raise it. Even a 1% or 2% increase compounds significantly over a 20 or 30-year career.
Vanguard recommends a combined employee and employer contribution rate of 12% to 15% as a target. Only half of participants are hitting that threshold.
Related: AARP warns Americans on major 401(k) problem
Cashing out when changing jobs
Job changes are one of the most common triggers for retirement savings mistakes. Workers treat their 401(k) balance as a windfall when they leave, and the temptation to cash out is real.
AARP has repeatedly warned about this pattern. About 41% of workers drain their retirement accounts upon leaving a job, according to recent research. What feels like a short-term cash boost becomes a long-term retirement shortfall.
The math is unforgiving. A $20,000 balance at age 40, left intact and growing at 7%, becomes more than $108,000 by age 65.
Cashing it out means paying income taxes on the full amount, plus a 10% early withdrawal penalty for anyone under 59 and a half. The net amount received is significantly less than what the account shows on screen.
The right move is a direct rollover. Rolling funds directly from your old 401(k) to your new employer’s plan or an IRA avoids taxes and penalties entirely.
The key word is direct. The money should never pass through your hands. If it does, you have 60 days to redeposit it or the IRS treats it as a distribution.
On the other side, high-fee IRAs quietly erode returns. A 1% annual fee on a $100,000 balance over 30 years results in tens of thousands of dollars less at retirement compared to a low-cost index fund alternative. Choosing where to roll over matters as much as the decision to roll over at all.
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Ignoring catch-up contributions after 50
Workers over 50 have access to catch-up contributions that most are not using. In 2025, the standard 401(k) limit was $23,500. Workers aged 50 and older could add an additional $7,500, for a total of $31,000.
Workers aged 60 to 63 qualify for an even larger super catch-up under SECURE 2.0, bringing the total to $34,750. Yet only 16% of eligible participants over 50 took advantage of catch-up contributions in 2024, according to Vanguard. For workers who got a late start, these catch-ups can meaningfully close the gap.
What the 2025 data actually showed
There is genuine good news in the numbers. But context matters:
- Account balances hit a record. The average Vanguard 401(k) balance reached $167,960 at the end of 2025, up 13% year over year.
- More workers increased contributions. A record 45% of Vanguard participants raised their deferral rates during 2025, either voluntarily or through automatic escalation.
- Hardship withdrawals crept up. 6% of participants took a hardship withdrawal in 2025, up from 5% the year before. The SECURE 2.0 self-certification process made it easier, which likely contributed to the increase.
- Averages mask real disparities. The median balance is far lower than the average. Younger workers and frequent job-changers often have far less saved than the headline numbers suggest.
The budget pressure many workers faced in recent years made it harder to stay on track. Rising costs, job instability, and competing priorities are real obstacles.
But the data consistently shows that workers who stay in their plans, avoid early withdrawals, and capture the full employer match end up in dramatically better shape at retirement. The mistakes from 2025 are correctable. Most of them start with a single decision: log in and check your contribution rate.
Related: The surprising reason workers are cashing out 401(k)s early
