The Next Frontier in the Retirement Landscape

Despite facing financial challenges last year, Americans with access to high-quality workplace retirement plans saved at record rates. We speak with Joel Dickson, Global Head of Advice Methodology at Vanguard, who shares what may be the next frontier in the retirement landscape and why he thinks that positive saving behaviors will continue to trend.

What did 2022 look like in terms of retirement savings?

Despite challenging financial market returns last year, retirement plan participants saved at record levels. Our How America Saves study, an annual report tracking the retirement savings habits of roughly 5.5 million plan participants nationwide, found that despite facing several economic challenges like higher inflation, rising interest rates, significant declines in U.S. equity and bond markets, and decades-high mortgage rates, nearly a quarter of participants saved at least 10% of their own income for retirement, and the average employee deferral rate was at a historic high of 7.4%.

Participants also saw a total savings rate of 11.3% that reflects combined employer and employee contributions. Additionally, only 6% of participants traded last year, further highlighting the steady decline we’ve seen over the last 15 years. Furthermore, automatic enrollment has led millions more of Americans to save for retirement, and advice is helping participants to think more holistically about their financial goals.

Americans saved at record rates last year despite facing financial challenges, why is this?

Employers have revolutionized the retirement landscape by using automatic features to prompt more Americans to save for retirement more than ever. Automatic enrollment—which bypasses the inertia and procrastination often responsible for inhibiting voluntary enrollment—is particularly impactful, and it has more than tripled since the passage of the Pension Protection Act in 2006. Today, nearly 58% of Vanguard plans—including 76% of plans with at least 1,000 participants—have adopted automatic enrollment for their participants.

Employers are increasingly providing advice services to help with employees’ retirement journeys. What are your thoughts on advice services?

While automatic features have revolutionized the retirement landscape, we believe personalized advice is the next frontier. Retirement savers are often juggling competing financial goals and may not have the time to manage it all on their own. Having access to advice through their employer plan can help to simplify the sometimes-complex financial planning process and set them up for long-term financial success.

We’re seeing employers—especially large employers—give greater access to affordable and useful advice services to enhance participants’ retirement readiness. In 2022, for example, 41% of all plans offered advice services; amongst larger plans with more than 5,000 employees, 81% offered advice.

The data also shows that altogether, nearly three in four plan participants now have access to advice, such as a robo-advisor or guidance from a CFP. We believe that advice should be accessible, tailored, measurable and transparent; provide value in line with the cost; and align with the best interests of each investor in mind.

Americans continue to face economic weakness. What does this year look like so far for retirement savings and what trends are driving these behaviors?

The data proves that American workers are generally resilient and maintain a long-term approach to retirement savings, even during economic uncertainty. In 2022—a challenging year for many— participant rates reached an all-time high, trading declined, and average deferral rates remained at a historic high. Based on the data, we have no reason to believe that 2023 and beyond will be any different than 2022.

While the future remains an enigma, we’re optimistic that positive saving behaviors will continue to trend. An important factor contributing to the continued success is the increasing recognition of participants’ larger financial picture within workplace retirement plan savings.

By focusing on financial wellness and creating healthier habits— successfully managing debt, building credit and balancing retirement savings against non-retirement goals—while also considering long-term retirement savings needs, participants can be in a much better position to meet all their financial goals. The continued growth of accessible, personalized advice will also further advance the success in meeting these goals.

Any advice for investors who are actively thinking about their retirement?

Investors can get spooked by market movements or a change in circumstance, which can ultimately lead to emotionally-charged decisions. But our advice continues to be to focus on the things you can control. That includes creating clear and appropriate investing goals, developing a suitable asset allocation using broadly diversified funds, minimizing cost, and maintaining perspective and long-term discipline, especially in times of market tumult or life changes.

If you’re struggling stomaching the volatility, assess if your level of risk is the right level for your needs. If it is, advisors can often help investors stick to their goals and understand how even a down market is baked into a long-term financial strategy.

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.