how america saves 2018 america sav… · slide id # s012839 for institutional use only. not for...

For institutional use only. Not for distribution to retail investors.

Jean Young, Senior Research Associate,

Vanguard Center for Investor Research

HOW AMERICA SAVES 2018

Vanguard 2017 defined contribution plan data

2For institutional use only. Not for distribution to retail investors.Slide ID # S012681

Agenda

– The market

– How America Saves 2017

– Accumulating

– Managing

– Accessing

– Implications

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3For institutional use only. Not for distribution to retail investors.

The market environment


December 31, 2007–December 31, 2017

S&P 500 daily close

Past performance is no guarantee of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Source: S&P 500 Index.

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500

2,900

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Recessionary period

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

667

2,673


How America Saves 2018


Autopilot designs effect

• Younger than age 25, about 4 in 10 participate

• Earning less than $30,000 a year, about half participate

• Less than two years on the job, about 6 in 10 participate

Participation rates steady

Participation rates

Across all plans, one-quarter of eligibleworkers fail to participate

Plan

Individual

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Source: How America Saves 2018, Vanguard.

77%

81%

73% 72%

0%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


There is a group of strong savers

• 12% make Roth contributions

• About 1 in 5 participants defer 10+%

• Income >$100,000, 4 in 10 save the maximum allowed

• Income >$100,000, 4 in 10 make catch-up contributions

Deferral rates relatively unchanged

Deferral rates

3 in 10 participants defer <4%

Average

Median

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7.0%6.8%

6.0%6.0%

0%

10%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


Aggregate saving rates

Aggregate saving rates hold steady

10.6%10.3%

9.8%9.6%

0%

15%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


Average

Median

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Automatic enrollment designs

• 50% enroll at 3% or less

• 50% choose higher rates

• 66% have automatic deferral increases

• 99% have a balanced default strategy

– 97% have target-date funds

– 2% have traditional balanced fund

46% of plans have adopted automatic enrollment

Automatic enrollment adoption grows

Two-thirds of new plan entrants in 2017 were in plans with automatic enrollment

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Plans using automatic enrollment

Participants in automatic enrollment plans

20%

46%

24%

63%

0%

80%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


Deferral rates Participation rates (estimated)

Automatic versus voluntary enrollment 2017

All

Voluntary

Automatic

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6.8%

4.5%

7.0%

5.0%

6.7%

4.2%

0%

10%

All Income<$30,000


72%

54%57%

37%

92%

84%

0%

100%

All Income<$30,000


Wide variation in account balances

• One-quarter of participants have account balances of more than $100,000. Most were:

– Older

– Long-tenured

– Higher income

• One-third of participants have account balances of less than $10,000. Most were:

– Younger

– Shorter-tenured

– Lower income

Account balances rise modestly in 2017

Account balances (in thousands)

Average

Median

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$56

$104

$17

$26

$0

$110

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017



Contribution allocationsAccount balance allocations

Overall equity allocation unchanged

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8% 7% 6% 4%

44% 43% 41%41%

23% 26% 28% 33%

7% 6% 6%6%

7% 7% 7%6%

11% 11% 11% 9%

0%

100%

2014 2015 2016 2017

72% 71% 71% 73%


Percentage equity

Brokerage Target-date Cash

Company stock Other balanced

Diversified equity Bond

5% 4% 3% 2%

34%32%

30% 29%

41% 46% 49% 54%

6% 5% 5%4%

6% 6% 6% 5%

8% 7% 7% 6%

0%

100%

2014 2015 2016 2017

74% 74% 74% 75%


Education opportunity?

• 3% of participants allocate all of their plan assets to fixed income—another 7% less than 40%

• 5% of participants allocate all of theirplan assets to equities—another 9% more than 90%

• 5% of all participants allocate more than 20% of their plan assets to company stock

Variation in equity holdings

Distribution of equity exposure 2017

1 in 4 participants appear to make portfolio construction errors—either investing too conservatively or too aggressively

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3%4%

3% 3%

6%

9%

18%

40%

9%

5%

0%

50%

0 1–30 31–40 41–50 51–60 61–70 71–80 81–90 91–99 100

Perc

enta

ge o

f part

icip

ants

Percentage of equity



Sponsors have increased the number of investment options offered over thepast decade

• But participants hold few funds

More funds offered; fewer funds used

Number of options offered and used

Index core: 61% of plans offer and 72% of participants have access

Each life-cycle counted separately

Life-cycle counted as single fund

Funds used by participants

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24

27

18 18

3 3

0

30

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017



Percentage of participants with professionally managed allocations

Professionally managed allocations

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13%16%

20%24%

27%31%

39%42%

46%

51%

7%

6%

6%

6%

6%

6%

2%

2%

3%

3%

3%

3%

3%

4%

4%

4%

4%

22%

25%

29%

33%

36%

40%

45%

48%

53%

58%

0%

60%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


Target-date fund

Target-risk or traditional balanced fund

Managed account program


2017

Participants choose to hold target-date funds

Among participants holding target-date funds

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32% Voluntary enrollment pure TDF investors

34% Automatic enrollment pure TDF investors

1% Reenrollment pure TDF investors

1% Reenrollment mixed TDF investors

12% Automatic enrollment mixed TDF investors

20% Voluntary enrollment mixed TDF investors



More frequently offered—less frequently used

Advice in 2017

Percentage of plans offering

Percentage of participants offered

Percentage of participants using

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41%

30%

65%65%

55%

71%

6% 7%

2%

0%

100%

Online Managed account Financial planning 55+



2017

Percentage of participants

Portfolio construction has improved

2008

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74% Balanced strategies

11% Aggressive equity

7% Conservative equity

3% Zero equity

5% Concentrated company stock

51% Balanced strategies

17% Aggressive equity

10% Conservative equity

11% Zero equity

11% Concentrated company stock


“Do-it-yourself” participants (42%)Single TDF participants (51%)

Professionally managed allocations have reduced the dispersion of risk and return.How America Saves

Past performance is not a guarantee of future results.

Source: Vanguard, How America Saves 2018.

Note: U.S. stocks represented by the MSCI US Broad Market Index; U.S. bonds represented by the Barclays U.S. Aggregate Bond Index; International stocks represented by the MSCI All Country World Index ex USA. Includes 1,000 random sample of participant

accounts drawn from respective samples. Excludes 0.5% top and 0.5% bottom outliers for both risk and return, for a net sample of 980 observations. Vanguard defined contribution plan participants for the five-year period ended December 31, 2017.

Accumulation phase / auto features

Participants younger than 35 years of age

Participants ages 35 to 55

Participants older than 55 years of age

Fiv

e-y

ear

annualiz

ed t

ota

l re

turn

Fiv

e-y

ear

annualiz

ed t

ota

l re

turn

Five-year annualized standard deviation Five-year annualized standard deviation

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0%

20%

0% 25%

Non-U.S.

stocks

U.S. stocks

U.S. bonds

0%

20%

0% 25%

U.S.

stocks

Non-U.S.

stocks

U.S. bonds


Australian bonds

Australian shares

International shares

0%

20%

0% 14%

Australianbonds

Australian shares

International shares

0%

20%

0% 14%

Slide ID # S018301

Self-directed members (12%)Lifecycle members (83%)

Professionally managed allocations have reduced the dispersion of risk and return.How Australia Saves

Past performance is not a guarantee of future results.

Source: Vanguard, How Australia Saves 2017.

Note: Australian shares represented by the S&P/ASX 300 Index; Australian bonds represented by the Bloomberg AusBond Composite 0+ Yr index; International shares represented by the MSCI World ex-Australia Index.

Accumulation phase / auto features

Members younger than age 55

Members older than 55 years of age

Fiv

e-y

ear

annualiz

ed t

ota

l re

turn

Five-year annualized standard deviationF

ive-y

ear

annualiz

ed t

ota

l re

turn

Five-year annualized standard deviation

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Participant trading decisions 2017

Do participants trade? No

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98% 98%

88%

87%

7%8%

0%

100%

Single target-date Single balanced Managed account All other investors

Nontrader

Traded to 100% fixed income

Decreased equities by more than 10

percentage points

Rebalancer shifted allocation by less than

10 percentage points

Frequent trader

Increased equities by 10 percentage points

or more

Traded to 100% equities


Money movement as percentage of average assets

Participants moved both into and out of equities

-3%

0%

3%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Assets

tra

ded a

s a

perc

enta

ge o

f avera

ge a

ssets

Gross movement into equities

Gross movement into fixed income

— Net flow

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017



2017

Why loans are not a bad thing

Among employees earning less than $30,000

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46% Nonparticipants

42% Participants with no loans

12% Participants with a loan outstanding


0

16

Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017

Num

ber

of tr

ansactio

n p

er

1,0

00 p

art

icip

ants

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Slide ID # S012702

Active participants accessing retirement savings

Are active participants accessing accounts at a higher rate? No and yes

— Loans

— Non-hardship withdrawals

— Hardship withdrawals

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Assets largely preserved for retirement

• 84% of participants preserved 97% of available assets in 2017

– 72% defer within the plan

– 12% roll over

– 16% cash out

• Smaller balances tend to be cashed out

Most assets preserved for retirement

Plan distribution behavior

82%84%

96%98%

0%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Making the numbers look bad

• 16% ÷ 28% = 57% cash out

• 12% ÷ 28% = 43% rollover

Percentage of participants retaining assets

Percentage of assets retained

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Participants with termination dates in 2017

Plan distribution behavior by age and account balance

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0%

100%

<$1,000 $1,000-$4,999

$5,000-$9,999

$10,000-$24,999

$25,000-$49,999

$50,000-$99,999

$100,000-$249,999

$250,000-$499,999

>$500,000

Perc

enta

ge o

f part

icip

ants

pre

serv

ing a

ssets

20s 50s

30s 60s

40s 70s


Vanguard defined contribution plans

Participant channel utilization 2017


77%

86%

87%

81%

81%

72%

52%

11%

9%

7%

12%

5%

15%

13%

10%

5%

6%

6%

13%

7%

30%

6%

5%

0% 100%

All transactions

Exchanges

Contribution allocation changes

Payroll deferral rate changes

Enrollments

Loans

Withdrawals

Internet Associate

Mobile Voice-response unit

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Small business edition2018 Vanguard Retirement Plan Access™

supplement to How America Saves


Roth and Maxing outParticipation rate

Participant behavior–It’s pretty consistent on a number of metrics

Deferral rate

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81%*

72%*72%

63%

0%

90%

Plan Participant

6.8%*

6.0%*

7.1%

5.1%

0%

8%

Average Median

12%

13%*

15%

12%

0%

18%

Roth Max


Vanguard Retirement Plan Access 2018

Source: How America Saves 2018, How America Saves Small Business Edition, Vanguard.

* Estimated, see Methodology section of How America Saves 2018.


DistributionsEquity allocation

Participant behavior–Other metrics where it’s consistent!

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73%75%

73%75%

0%

100%

Assets Contributions

84%

98%

87%

97%

0%

100%

Participants Assets





Account balance

(in thousands)Demographics

Where it’s different

Employer contribution

Income (in thousands)

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96%*

75%

0%

100%

Offered

$59*

$48

$0

$120

Employee income

$104

$26

$62

$11

$0

$120

Average Median

45

6

42

4

0

50

Age Tenure




* Estimated, see Methodology section of How America Saves 2018.


Balanced PortfoliosOffer TDF

The power of plan design

TDF allocation Pure TDF

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92%

98%

0%

100%

Plans

51%

59%

0%

100%

Participants

74%

80%

0%

100%

Participants

33%

54%

43%

52%

0%

100%

Assets Contributions





Implications for the future


Have the challenges changed?

• Half of participants in DC plans don’t appear to save enough

– But half of participants do have strong savings rates

• One-quarter of participants appear to make portfolio construction errors

– But 6 in 10 are solely invested in professionally managed investment solutions

• Drawing down retirement assets is the emerging challenge for participants

– Some participants may need to work longer

The 401(k) question

Tracking #: 507125 DOLU: 11/29/2019

how america saves 2018 america sav… · slide id # s012839 for institutional use only. not for...

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