Despite shortfalls, America’s retirement picture can improve

At Vanguard, we asked this question for the whole country: Are we saving enough to maintain our lifestyle in retirement? To answer, we applied Vanguard’s market projections to household balance sheets in order to forecast retirement savings down the line.

Retirement readiness: The statistics

We find that roughly two in five Americans are on track to meet their retirement spending needs. But retirement readiness is not black and white. The typical American will have a $5,000 annual spending shortfall in retirement. That means possibly needing to cut back on spending, work a year or two longer, tap into home equity, or lean on family.

The good news? We have seen considerable progress. Defined contribution plans are making a difference. People who have access to them are almost twice as likely to be ready for retirement (54%) than those who don’t (28%). More people have access to a defined contribution plan today than ever.^[2] And if we were able to expand access to all, we could close much of the retirement readiness gap for the typical American.

We also see progress across generations. Among baby boomers, 40% are on track for retirement, while among Gen Z almost half (47%) are positioned for success. Still, younger generations have a lot to contend with. Rising debt, inflation, and health care and housing costs have put pressure on these generations’ capacity to save; millennials, for example, carry twice the nonhousing debt that baby boomers had at their age.

At the same time, we have made it increasingly easier for people to save. Most employers today auto-enroll their workers into retirement savings plans, start them saving at 4% or more of their annual salary, and automatically increase their savings rate each year. Younger workers stand to benefit for longer from better plan design, leading to stronger retirement outcomes.

Although we see progress, there is still more work to do. We see bigger retirement readiness gaps for lower-income Americans. Among baby boomers earning $22,000 a year or less, fewer than one in six are on track for retirement, even though Social Security will replace most of their income. Why? Many people in this group struggle to put away much for retirement given their income, and their spending in retirement isn’t likely to be much lower than their preretirement spending.

Steps to boost your retirement savings

Worried that you might not be on track? First, know your own numbers. Then consider these four steps:

1. Take full advantage of your employer plan and contribution match. Participate in your employer’s retirement plan and contribute enough to maximize the employer match. If you’re self-employed, you can match your own savings tax-free.
2. Maintain savings momentum when you switch jobs. Consider increasing your savings rate each time you get a raise or switch jobs. Many new hires go with the default savings rate, which can result in putting away less. And don’t cash out. Roughly one in three workers do so, but that can hurt long-term growth and trigger taxes.
3. Consolidate your assets. The typical worker has 2.8 retirement accounts and three prior employers, creating unnecessary complexity.^[3]Consolidating your assets in one place—a retirement plan or an Individual Retirement Account—can help you track your progress toward your retirement goal, reduce costs, and prevent you from cashing out.
4. Plan for a longer life and career and delay taking your Social Security benefits. Members of Gen Z can expect to live three years longer than their baby-boomer grandparents. We find that working two years longer can close the retirement savings gap for most people. In addition, delaying Social Security benefits is a great way to boost retirement income—to the tune of 8% per year.^[4] That’s the cheapest annuity you can buy.

America’s retirement outlook is getting brighter. Yours can too.

Note: All investing is subject to risk, including possible loss of principal.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.