Engineering an efficient retirement system
As employers increasingly offer DC benefits, more than half of American workers have an easy, streamlined way to save for their retirement.1 Workers with DC access are almost twice as likely as those who don’t to reach their retirement savings goals.2
By removing barriers to saving and investing through features such as autoenrollment and automatic escalation, along with default investment options like TDFs, millions of workers start saving and investing with little effort. They put $800 billion in savings into DC plans in 2024.3 The U.S. retirement system now has $14 trillion in DC assets and another $19 trillion in IRA assets, which are mostly funded by rollovers from DC plans.4
A critical enabler in building this enormous scale has been the widespread adoption of index TDFs. A few data points illustrate their prevalence today among investors saving for retirement:
- Nearly all Vanguard record-kept plans had a designated default fund in 2024, and for 91% of those plans, it was a TDF. In 2015, only about 1 in 10 plan sponsors had designated a money market fund or a stable value fund as the default option.5
- The importance of TDFs continues to grow as new savings into DC plans are increasingly being directed to TDFs. In DC plans, about 65% of new savings are now flowing into TDFs, and that figure is expected to grow to roughly 70% by 2030.6
- Index TDFs accounted for about 60% of total target-date assets in 2024.7
How indexing can help investors build retirement wealth
For retirement plans designed to serve millions of participants, indexing solves a specific structural challenge: how to deliver broad market exposure, low costs, and good investment outcomes over a long retirement planning horizon at scale.
Indexing is a strategy that relies on market participation in a simple and transparent way:
- Diversification, built in. Index TDFs offer instant exposure to hundreds or even thousands of securities, spreading risk across companies, sectors, and regions. Replicating that diversification directly would be out of reach for most investors.
$3.2 million: That is about how much it would cost an investor to own at least one share of every company in the Standard & Poor’s 500 Index while maintaining market‑capitalization weights.8 Index funds make that market access broadly available to virtually all investors at scale.
- Low cost, by design. Because index funds aim to track markets rather than trade frequently, they tend to have lower expenses than actively managed funds. Those lower costs increase the share of returns that investors keep.
$570 billion: That’s our estimate of how much index funds could have collectively saved investors in fees from 2000 through 2025.9
The potential for fee savings is even greater in DC plans where investors can invest in collective investment trust (CIT) vehicles, which are cheaper than mutual funds available to retail investors. About the same amount of TDF assets are in CITs as are in mutual funds.10 - Compounding, over time. Index investing is grounded in a long-term philosophy that doesn’t require constant attention or precise timing. With regular contributions and long investment horizons when investors are saving for retirement, returns have the potential to build on themselves.
$2.0 million: Roughly what a hypothetical $10,000 investment in 1976 in what is now the Vanguard 500 Index Fund could have grown to by March 31, 2026, illustrating how sustained market participation in an index fund can translate into long-term growth.11
The quiet, powerful engine worth celebrating
Sources:
1The Vanguard Retirement Outlook: Strong national progress, opportunities ahead.
2The Vanguard Retirement Outlook: Strong national progress, opportunities ahead.
3 The Cerulli Report: U.S. Retirement Markets 2025. DC contributions include corporate DC and ERISA-covered 403(b) plans.
4 Release: Quarterly Retirement Market Data, Fourth Quarter 2025. Investment Company Institute.
5How America Saves 2025. Vanguard.
6 The Cerulli Report: U.S. Defined Contribution Distribution 2025, Exhibit 4.02.
7The Cerulli Report: U.S. Defined Contribution Distribution 2025, Exhibit 4.06.
8 Vanguard calculations, based on data from Bloomberg, as of November 30, 2025.
9 Data for this figure reflect the difference between the cumulative expense ratio fees paid by investors owning open-end funds and what they would have paid if index funds didn’t exist. Investor savings in the cumulative fee savings chart are calculated as: (asset-weighted expense ratio of actively managed funds multiplied by industry assets) minus (asset-weighted expense ratio of index funds multiplied by industry assets).
10 The Cerulli Report. The Target-Date Fund Landscape: Market Sizing and Trends.
11 The figure reflects the hypothetical cumulative wealth of an initial $10,000 investment in Vanguard 500 Index Fund Investor Shares from December 31, 1976, through March 31, 2026. Returns are calculated from monthly fund total returns, net of fees.
The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so investors’ shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. For performance data current to the most recent month-end for Vanguard 500 Index Fund Investor Shares (VFINX), visit our website.
The sources for the figure are Vanguard calculations, using data from Morningstar, Inc., as of January 2026.
Notes:
For more information about Vanguard funds, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
All investing is subject to risk, including possible loss of principal.
Diversification does not ensure a profit or protect against a loss.
Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date.