In 2025, American full-time employees decreased their retirement savings contributions for the first time since tracking began three years ago, according to new data from payroll firm Dayforce. The average 401(k) contribution rate dropped to 8.9% from 9.2% in 2024, with one in four workers cutting back on annual savings in employer-sponsored retirement plans.
The steepest decline occurred among workers earning between $50,000 and $100,000 annually, highlighting financial difficulties faced by middle-income Americans. Jason Rahlan, global head of sustainability and impact at Dayforce, noted this trend likely reflects employees reducing retirement savings to increase take-home pay amid budget constraints.
Additionally, almost 20% of full-time workers took loans from their 401(k) accounts last year, the highest percentage since Dayforce began collecting this data. Rahlan described this pattern as a “warning sign” of financial strain that may force workers to prioritize immediate expenses over long-term retirement planning.
Supporting this, a December 2025 study from Allianz Life found that about half of Americans felt more financially stressed entering 2026 than the previous year, with day-to-day expenses being the main concern. Matt Bahl, vice president at the Financial Health Network, emphasized the impact of continuous saving reductions, warning of potential long-term setbacks if the trend continues.
Rising costs, including an estimated $740 increase in household fuel expenses due to escalating global oil prices linked to the Iran war, could further pressure retirement savings in 2026. This outlook aligns with findings from Vanguard, which reported a record number of hardship withdrawals from 401(k) plans last year—6% of participants compared to 5% in 2024.
Generational differences in savings behavior
While total retirement savings declined across baby boomers, Gen X, and millennials in 2025, Generation Z workers (born 1995–2009) bucked the trend by increasing their contribution rate from 5.9% to 6.2%. Rahlan noted Gen Z has seen the largest gains in participation and savings rate among all generations tracked.
Financial experts attribute this to younger workers learning from the mixed retirement experiences of older generations, especially the shift from employer pensions to 401(k) plans requiring individual contributions and investment choices.
Why it matters
The decline in retirement savings contributions combined with increased borrowing from retirement accounts raises concerns about long-term financial security for American workers, especially those in the middle-income bracket. Continuous reductions and emergency withdrawals could jeopardize individuals’ ability to accumulate sufficient funds for retirement, intensifying the existing affordability crisis.
With rising living costs and economic uncertainties persisting, understanding these trends is critical for policymakers and employers aiming to support Americans’ retirement readiness.
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