Buck Bond Group
The worrisome state of retirement readiness

The worrisome state of retirement readiness

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Recent weeks have seen the release of a flurry of annual updates to various surveys of how America saves for retirement. Most of the coverage is about what the average size of account balances, while some delve into savings rates and the potential for participants to live well in retirement.

These reports are important, as over 110 million[i] Americans participate in defined contribution (DC) retirement plans. For most participants, the DC plan is the primary way that they accumulate wealth for retirement. Among active participants in private pension plans, there are almost seven times as many participants in defined contribution plans than in defined benefit plans. In 2020, the most recent year that the data is available, new employer and participant investments in private defined contribution plans exceeded $500 billion.

On the surface, some of the data seems impressive. Among plans included in a Vanguard analysis[ii], for example, average participant rates are high (over 80%), average account balances are growing, and the average contribution rate, including both employer and participant contributions, is estimated to be over 11.0%. [It’s important to note that while we continue to observe these growth rates, there are still significant gaps between the averages and medians. Similar research sources indicate an average balance of $141,542, but a median balance of $35,345.]

The data also confirm that regulatory changes are making a difference. As we have noted before, there have now been three major pieces of legislation, the Pension Protection Act of 2006, Secure Act of 2019, and Secure 2.0 of 2022, that aimed to give plan sponsors important tools to make defined contribution plans into effective retirement savings plans. Some of these changes, including the safe harbor permitting the use of target date funds as a qualified default investment option (QDIA), automatic enrollment, and automatic escalation, have had a significant impact. For example, again drawing from Vanguard’s data:

  • About 95% of plan sponsors now use a target date fund as the qualified default investment option. Among those plans, about 82% of participants use the target-date fund. Over half of new contributions to DC plans are invested in target date funds.
  • Most plans now use automatic enrollment. As of 2021, the participation rate in plans with auto-enrollment averaged 93%. Plans without this feature averaged 66% participation.
  • Over two-third of plans with auto-enrollment also have automatic increases in the contribution rate. The average contribution rate is about the same between the auto-enrolled and voluntarily enrolled population.

Separate from the Vanguard data, we note that plan sponsor implementation of a broader set of retirement income distribution options is still in the early stages, though this was an area encouraged by Secure 1.0 and 2.0 and is currently an area of a lot of interest.

For all the activity, is the system working?

When we analyze a DC plan, we generally start with the goals of the plan sponsor and, more often than not, one question – as currently configured, would a lifetime participant in this plan be prepared for retirement? That is, would they have sufficient retirement savings to be able to maintain their lifestyle in retirement (sometimes referred to more soberly as longevity risk or not outliving one’s financial resources).

For most plans, the answer to this question is, “No”. That is, most DC plan participants are not on track to be well prepared for retirement.

Fidelity’s recent report, Retirement Readiness During Uncertain Times[iii], asks a similar question. To summarize their assessment of America’s retirement readiness:

  • Over 1/3 of households will need to make “significant adjustments” to their lifestyle to cover essential expenses in retirement.
  • Another 18% will need to make moderate adjustments to their lifestyle.
  • Only 32% of the population, down from 37% in 2020, is on track to cover total expenses in retirement, including essential and discretionary expenses.

From our exposure to a variety of DC plan sponsors, we think that this analysis is representative. That is, while existing DC plans are working for some, over half of DC plan participants are not on track to be well prepared for retirement.

What’s a plan sponsor to do?

In our work with plan sponsors, we find it helpful to take a systematic look at the building blocks for making a DC savings plan into an effective retirement savings vehicle. These are:

  • Participation rates
  • Savings rates
  • Investment options, including both wealth accumulation and distribution

While the circumstances of each plan will differ, as will the circumstances for many demographics within the plan, it is possible to systematically assess where the plan has room for improvement and what policies, or strategies can be implemented to drive plan success. By analyzing the policy options systematically, we can work with plan sponsors to solve for a variety of challenges, including improving plan participation, driving savings rates higher, improving potential participant investment outcomes, and using the DC plan design to help address diversity, equity, and inclusion (DEI) issues in retirement savings. With a systematic approach, the plan sponsor also develops a reference point for monitoring the impact of changes to the plan, and whether they are achieving the intended benefit.

A public policy perspective

While this discussion has focused on participants in defined contribution plans, we are mindful that about 20%[iv] of the civilian workforce currently does not have access to retirement benefits or retiree medical care. This means that whatever the state of the plan participant population, the broader retirement readiness crisis is even more severe. While much has been done in recent years to lay the groundwork for broader access and improved participation, there is still much to do.

[i] Private Pension Plan Bulletin, Abstract of 202 Form 5500 Annual Reports. Published by the Employee Benefits Security Information Administration, United States Department of Labor. October 2022.

[ii] How American Saves 2022. Published by Vanguard. June 2022.

[iii] Retirement Savings Assessment 2023, Executive Summary. Published by Fidelity, March 2023.

[iv] Employee Benefits in the United States. U.S. Bureau of Labor Statistics, National Compensation Survey 9NCS). September 22, 2022.


The information provided in this publication is for informational purposes only and is not intended to be investment advice. The opinions in this publication should not be considered a solicitation to buy or sell any security, nor a recommendation for any investment product or strategy. Strategies or investments discussed in this publication will fluctuate in price or value. Investments or strategies mentioned in this publication may not be suitable for you. This publication does not take into account your particular investment objectives, financial situation or needs. Before acting on investment decision, you should consider whether it is suitable for your plan’s particular circumstances and strongly consider seeking advice from a qualified financial or investment adviser. The content provided herein is based on sources that are considered to be reliable. No guarantee is provided on its accuracy, correctness or completeness.