Despite challenges, Americans remain focused on saving for retirement.
In the face of economic uncertainty, market volatility, geopolitical unrest and the ongoing COVID-19 pandemic, plan participants have continued to save for retirement. Vanguard’s annual report, “How America Saves 2022,” cites a number of encouraging factors that are contributing to this trend.
Plan Sponsor Support
The report acknowledges that the pandemic has brought more attention to the unstable position of most Americans’ finances (70% of Americans surveyed say anxiety over finances is their top stressor). In addition, during one of the tightest labor markets in recent history, employees’ expectations are increasing. The report finds that more and more employers are realizing that anxiety over finances jeopardizes an employee’s path to a successful retirement and impacts their day-to-day life. Employers are working with their advisers to implement smart plan design strategies to get their employees enrolled in the plan and saving at higher rates. In addition, more employers are broadening their focus beyond retirement to help employees manage other basic financial needs, such as budgeting, debt management, emergency savings and student loan repayment.
Contribution Rates Stay Steady
Vanguard’s survey found that participants’ median total contribution rate—including participant and employer contributions—was 10.4% in 2021, compared to 10.5% in 2020. Vanguard credits plan sponsors adopting automatic deferral and automatic escalation as the reason for the rate staying constant through the pandemic, market volatility and rising inflation. However, roughly half of retirement plan participants continue to save below the recommended savings rate of 12% to 15% of their salary. Vanguard found that slight deferral increases could help close this savings gap, as about 20% of participants saving below these levels are just 1-3% away from the target savings rate.
Growth in Managed Account Advice Services
Plan sponsors are also increasingly offering tools and resources to support employees with their savings and investment planning. For example,
- 41% of all Vanguard DC plans offered managed account advice in 2021, versus 30% in 2017.
- The percentage of participants who were offered managed account advice was 74% in 2021, versus 55% in 2017.
- The percentage of participants who were offered managed account advice and used the service was 10% in 2021, versus 7% in 2017.
Other Notable Progress in 2021
- Only 2% of participants stopped contributing and only 7% decreased their salary deferrals.
- 17% of participants made a participant-directed increase, 25% made an increase due to auto-escalation and 49% made no change.
- The participation rate for plans that used auto-enrollment was 93%, compared to 66% for plans that did not use auto-enrollment.
- 58% of plan sponsors using auto-enrollment increased the default contribution rate to 4% or higher.
Click here to view Vanguard’s “How America Saves 2022”
Disclaimer: Heartland Retirement Plan Services are offered through Dubuque Bank and Trust Company. The information provided herein is general in nature and is not intended to be nor should be construed as specific investment, legal or tax advice. The factual information has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Heartland Retirement Plan Services makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, it. Products offered through Heartland Retirement Plan Services are not FDIC insured, are not bank guaranteed and may lose value, unless otherwise noted.