Americans are feeling hopeful about retirement, according to two new reports

After all the gloom and doom predicting retirement wipeouts for many Americans, it’s a relief to get some mostly upbeat news.

Two new studies out this week — one from Vanguard and the other from Fidelity Investments — shine a rosy glow on how American workers with employer-provided retirement plans are robustly saving and imagining their future retirements with more chutzpah than ever.

Let’s start with Vanguard, which found that Americans are setting aside funds for retirement at record rates. Some 43% of workers increased the percentage of their paycheck they set aside in their 401(k) account last year, compared with 8% who cut their contributions and 2% who stopped, according to a snapshot of “How America Saves 2024” report by Vanguard.

The breakdown: 15% of participants increased their payroll deferral percentage on their own, while 28% of participants had theirs increased via their employer plan’s annual automatic increase, boosting the savings rate to the highest percentage the firm has recorded in the 23 years that it has been analyzing retirement saving behavior.

One mega factor that has ramped up those savings rates has been the increasing number of employers automatically enrolling employees in workplace 401(k) plans — and automatically bumping up contributions annually, Jeff Clark, head of defined contribution research at Vanguard, told Yahoo Finance.

Then there’s this sweet finding: Three-quarters of Americans are confident about retiring on their own terms, according to Fidelity’s new 2024 State of Retirement Planning study.

Read more: Retirement planning: A step-by-step guide

“Market highs like the one we just saw can help people feel more confident about being able to retire when and how they want,” Sangeeta Moorjani, head of tax exempt and retirement at Fidelity Investments, told Yahoo Finance.

Last year, the S&P 500 index (^GSPC) was up 26.3%, and the Dow Jones Industrial Average (^DJI) rose 13.7%.

The impact of automatic enrollment

By year-end 2023, 59% of Vanguard retirement plans had adopted automatic enrollment, up from 56% in 2021 and nearly double the number a decade ago. Of those plans with automatic enrollment, 6 in 10 defaulted employees into the plan at a deferral rate of 4% or higher.

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The payback is tangible: Employees who work for a company that offers automatic enrollment save nearly 50% more than employees who work for a firm with voluntary enrollment, according to Vanguard data.

“The impact on employee retirement savings is encouraging,” Clark said.

Combine that with the rebounding stock market last year and in 2023, account balance averages at Vanguard increased by 19%. The average participant account balance was $134,128 as of year-end 2023, and the median balance was $35,286, a 29% increase since year-end 2022.

Hardship withdrawals are at record highs

To keep it real, though, there were a few flags of financial stress. The share of Vanguard 401(k) holders who raided their accounts for financial emergencies in 2023 was the largest ever. Last year, nearly 4% pulled money out early to pay for financial hardships, and the percentage of workers dipping into their savings for loans increased by 12% compared with 2022.

The pillaging may have been spurred by higher medical and other living expenses from food to rent, or simply the fatter account balances gave them permission to tap into their savings.

But keep it in perspective, Clark said. “More than 96% of participants didn’t take a hardship withdrawal.”

Even so, taking money from your retirement income has a bite beyond depleting your accounts. You must pay income tax on any previously untaxed money you receive.

You may also have to pay an additional 10% tax if you’re not at least 59½, unless you meet one of the IRS exceptions. These include certain medical expenses, qualified tuition payments, and up to $10,000 for first-time homebuyers.

The figures punctuate how many people’s retirement accounts have also become their emergency savings fund when unexpected costs suddenly surface.

Out with the old

Fidelity’s report highlighted interesting shifts in the very notion of retirement.

Traditional retirement — characterized by turning off the switch on work for a life of leisure — no longer holds much charm for more than half of Gen Z and millennials.

In fact, across generations, two-thirds of Americans look forward to pursuing work for pleasure while in retirement and hope for a phased retirement — working full-time initially, then part-time, before stepping out completely.

“The rise of remote and flexible work options certainly played a role in the trending retirement concepts we’re seeing today — such as ‘phased retirement’ and even ‘unretiring,’” Moorjani said. “Now that people know they can work from anywhere, retirement no longer has to mean the end of one’s working life.”

While nearly all respondents (85%) want to retire while they are still healthy enough to be active, targeting an average retirement age of 61-62, roughly 6 in 10 of those surveyed said they plan to work at least part-time in retirement, according to Fidelity.

What’s likely to push them to leap into retirement? Gen Z and Millennials cite becoming debt-free or reaching career goals as top factors. Boomers say they’ll retire when they emotionally “feel” ready.

To be sure, nearly half of those surveyed still have some nagging concerns about having enough money in retirement, including outliving their savings.

In fact, among the roughly one-fifth who retired — and then unretired — the reasons for going back to work were evenly divided between financial and the desire for mental engagement.

“What we find makes the biggest impact on when to retire is having a plan,” Moorjani said. “Our study shows each generation has started to plan for retirement seven to eight years earlier than the last, which is contributing to higher confidence levels.”

Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on X @kerryhannon.

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