It’s National Retirement Security Week, an annual campaign to raise awareness about the importance of saving for retirement. We know how critical it is to start saving early, so I welcome the effort to encourage employees to focus more on their financial future and the steps they can take to strengthen their retirement readiness.
The good news is this campaign gets people thinking about a topic that too often falls down the priority list. But even better news is responsible plan sponsors think about it year-round and use their plans to steadily build retirement readiness for their participants. When I meet with clients, the number one question is, “What can we do to get more of our employees ready for retirement?”
The answer starts with savings. Getting employees saving at an appropriate rate is the most important role a plan sponsor can play in the retirement security of their participants. Automatic plan design has gone a long way toward helping employees join the plan and save sufficiently. Our data shows participation rates have risen more than 20% over the past 15 years as more plans adopt automatic enrollment, and savings rates are holding strong thanks to higher default rates and automatic escalation features.
Keeping investment costs down is another way plan sponsors are building their participants’ retirement readiness. Participants can save more when they pay less for their investments, and plan sponsors are making it easier than ever to build a portfolio with low-cost, diversified funds. A great example is target-date funds, which are now offered in 92% of retirement plans administered by Vanguard.1 With an average asset-weighted expense ratio of 13 basis points, Vanguard’s Target Retirement Funds cost about one-fourth the industry average, offering participants balance and diversification at an extremely low cost.2
For plans that don’t use automatic features, or participants who are not on track to meet their goals, personalized communication helps bridge the gap between where participants are and where they want to be. At Vanguard, we recently introduced an updated homepage for participants that simplifies account information and provides easy next steps for participants to improve their retirement prospects. Breaking down the abstract concept of retirement into clear, actionable decisions helps participants strengthen their retirement readiness.
We don’t stop with the homepage. With our Personalized Participant Journeys, we use participant data and behaviors to create a more personalized experience for participants. This helps us ensure the right participants are getting the right messages at the right time to best help them on their retirement journey.
We have a lot to celebrate this week as higher savings, lower costs, and personal communications are producing better outcomes for millions of participants. To all the plan sponsors who are working hard to help employees prepare for retirement, happy National Retirement Security Week and thank you for your daily efforts to give individuals a better chance at a more comfortable retirement.
1 How America Saves 2017, The Vanguard Group, Inc., 2017.
2 Vanguard average target-date fund expense ratio: 0.13%. Industry average target-date fund expense ratio: 0.50%. All averages are asset-weighted. Industry averages exclude Vanguard. Source: Morningstar, Inc., as of June 30, 2017.
- All investing is subject to risk, including the possible loss of the money you invest.
- Diversification does not ensure a profit or protect against a loss.
- Investments in Target Retirement 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 the Target Retirement Fund is not guaranteed at any time, including on or after the target date.