Let’s just informally call it “Retirement Research Week.” Few weeks have ever seen as much new data about retirement accounts released in a single week as what we saw from June 24-28—apparently a rush to get it out there before the Independence Day holiday distracts people next week.
We had Vanguard’s How America Saves report; Prudential’s Pulse of the American Retiree Survey; Alight’s 2024 Universe Benchmarks Report; David Blanchett and Michael Finke’s report, “Guaranteed Income: A License to Spend,” from the Alliance for Lifetime Income’s Retirement Income Institute; Schroder’s 2024 U.S. Retirement Survey. And that’s just a handful of what came out this week (links to additional retirement research at the end of this article).
With so much information from so many different reports this week, we wanted to highlight a few of the data points that caught our eye.
1. 401(k) participants still saving at highest level ever
401(k) participants saved at record-high rates in 2023, according to How America Saves, Vanguard’s annual report on the retirement savings behaviors of nearly five million American workers, released this week.
The report found that the average participant deferral rate matched the historic high of 7.4% in 2023 (the median deferral rate was 6.2%). When combined with employer contributions, the average participant total savings rate kept pace with the all-time high of 11.7% (median 11%), reached the prior year.
“Smart plan design features are removing barriers to saving. Growth of advice and financial wellness tools are encouraging investing behaviors that lead to retirement readiness for more Americans,” said John James, managing director and head of Vanguard Institutional Investor Group.
Read more here:
• How America Saves? At a Record Pace in 401(k), Vanguard Finds
2. Auto-enrollment still boosting participation rates
Among plans with auto-enrollment, the average participation rate is 90%. Plans without auto-enrollment have an average participation rate of just 51%. That according to Alight’s 2024 Universe Benchmarks Report, released this week The average 401(k) participation rate increased slightly from 83% in 2022 to 84% in 2023.
And that’s not the only research this week touting the power of auto enrollment. How America Saves, Vanguard’s annual report on the retirement savings behaviors of nearly five million American workers, found 77% of plans with more than 1,000 participants featured automatic enrollment. Plans with automatic enrollment had a 94% participation rate, compared with 67% for voluntary enrollment plans.
In 2023, a record-high 59% of plans recordkept by Vanguard offered automatic enrollment. Among auto-enrollment plans, 60% defaulted employees at a deferral rate of 4% or higher, an all-time high.
Read more here:
• 5 Key Findings from Alight’s 2024 Universe Benchmarks Report
3. Annuitizers outspend non-annuitizers 2-1
Retirees with assets that annuitize income spend twice as much as retirees with an equal amount of non-annuitized savings—an interesting new finding David Blanchett and Michael Finke released this week in a new analysis, Guaranteed Income: A License to Spend, by the Alliance for Lifetime Income’s Retirement Income Institute.
“Essentially, annuities with lifetime income protection give retirees a psychological license to spend their savings in retirement,” said Blanchett, RII Fellow and Head of Retirement Research at PGIM DC Solutions. “Retirees clearly prefer to live off income, but many don’t feel comfortable depleting down assets to fund a lifestyle. This is an unfortunate paradox since funding a lifestyle is what motivates people to save for retirement, and few retirees indicate a desire to pass on significant wealth at death.”
Blanchett and Finke find that every $1 of assets converted to guaranteed income could result in roughly twice the equivalent spending compared to money left invested in a portfolio. This effect suggests that the explanation for under-spending of non-annuitized savings among retirees is likely both a behavioral and a rational response to longevity risk.
Read more here:
• How Annuitizing Income Gives Retirees a ‘License to Spend’ (Twice as Much!)
4. Americans think they need $1.2 million to retire comfortably
According to Schroder’s 2024 U.S. Retirement Survey, participants enrolled in a workplace retirement plan believe they’ll need $1.2 million to reach a secured retirement, surpassing the previous $1 million dollar mark.
However, Schroders’ findings show a disconnect between participants’ beliefs and their current reality. Almost half of respondents (46%) expect to have less than $500,000 in savings at retirement, and 23% say they won’t even have $250,000 by the time they leave work. In reality, just 29% are confident in their ability to achieve $1 million by the time they retire.
“The difference between how much money plan participants say they need to live comfortably and how much they expect to have saved is miles apart for most retirement savers,” said Deb Boyden, head of U.S. Defined Contribution at Schroders. “While the magic retirement savings number is over $1 million for many plan participants, they are not saving or investing correctly to reach this goal. Without better planning and a roadmap to close the savings gap, a comfortable retirement will be out of reach.”
Earlier this year, Northwestern Mutual’s 2024 Planning & Progress Study found Americans’ “magic number” for retirement surged to an all-time high, with U.S. adults believing they will need $1.46 million to retire comfortably, a 15% increase over the $1.27 million reported in the same survey last year.
Read more here:
• Americans Want $1.2M to Retire Comfortably
• Do Participants Really Need to Plan a 30-Year Retirement?
• $1.46 Million: New ‘Magic Number’ for a Comfortable Retirement
5. 401(k) Account balances spike 19% in 2023: Vanguard
According to How America Saves, Vanguard participants’ average account balances increased by 19% since year-end 2022, driven by an increase in equity and bond markets and ongoing contributions over the year. In 2023, the average account balance for Vanguard participants was $134,128; the median balance was $35,286. For comparison, the average 401(k) account balance at Fidelity at the end of 2023 was $118,600, and was $115,000 at plans recordkept by T. Rowe Price.
Read more here:
• How America Saves? At a Record Pace in 401(k), Vanguard Finds
6. Gen X retirement insecurity
Prudential’s Pulse of the American Retiree Survey released this week found that 55-year-old Americans (members of Gen X) are “far less” financially secure than their older colleagues, with a median retirement savings of less than $50,000. Furthermore, 67% of 55-year-olds are concerned about outliving their savings, compared to 59% of 65-year-olds and 52% of 75-year-olds.
This finding, released this week, comes on the heels of a Natixis study that found almost half of Gen Xers believe it would take a “miracle” for them to retire securely. The report found that 44% of Generation X workers say it would be miraculous if they could retire, while 24% believe they won’t be able to retire at all.
And the 2024 Annual Retirement Study released recently from Allianz Life found that while 82% of Baby Boomers and 77% of Millennials are confident in their ability to financially support themselves, just 62% of Gen Xers feel the same.
Read more here:
• Gen Xers Nearing Retirement Report Median Savings of $50k
7. Employer-employee financial wellness disconnect
There is a serious disconnect between the role employers believe they’re playing in employees’ financial well-being and how supported employees feel, according to a new report released this week by Payroll Integrations.
Nearly half (49%) of employers believe they’re completely supporting employees’ financial wellness, while only 28% of employees feel the same. While most employers (95%) believe they have a responsibility to support employees’ financial well-being, only 36% of employees say they feel completely financially stable.
“Employees are feeling the financial pressure from inflation, higher costs of living and the rise of insurance costs and now, more than ever, employers feel a responsibility to step in to help support their financial well-being,” said Doug Sabella, CEO of Payroll Integrations. “But, there’s a clear disconnect between what employers think employees want in terms of financial wellness offerings and benefit programs–and what employees feel they need to make a difference.”
Read more here:
• Financial Wellness Disconnect: Employers, Workers Disagree on Level of Support
More coverage of retirement research released this week:
• Plan Sponsors List M&A Activity, Growth Among Top Reasons for Switching Recordkeepers
• Medical Professionals Lack Confidence with Retirement Readiness
• Financial Advice Ticks Up as Investors Track Interest Rates, Upcoming Election
• Employees Continue to Struggle With COVID-19 Pandemic Impacts
• Americans Want Action to Fix Social Security
• Millennials and Gen Z Prefer Alternative Investments to Build Wealth
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.