Taking retirement readiness to the next level

May 6, 2019

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In recent years, plan sponsors have made significant enhancements designed to improve their employees' retirement outcomes. According to data from the 2018 edition of Vanguard's How America Saves:

Plan sponsors have made significant enhancements pie chart images
Plan sponsors have made significant enhancements pie chart images

While these statistics tell a good-news story about the positive steps you've taken in the here and now, they don't definitively answer the important long-term question:

Will your participants be ready for retirement?

"Vanguard knows that retirement readiness is of the utmost importance to plan sponsors and participants," said Dave Stinnett, head of the Vanguard Strategic Retirement Consulting (SRC) team that offers expertise spanning plan design and participant experience. "That's why we take a comprehensive approach, providing clarity and making recommendations to help achieve positive outcomes."

We help participants understand their retirement readiness by delivering a personalized experience and targeted messaging on our participant website. For plan sponsors, we offer a comprehensive plan analysis to tell you whether your employees will have the savings they need when they reach retirement age.

Helping your participants prepare for retirement

Your participants receive retirement readiness messaging every time they log on to our website. We show them their balance and how it translates to a monthly income figure in retirement. Participants can dig deeper by engaging with our online tool, which enables them to adjust their expected retirement age and target replacement ratio as well as add in retirement assets held at other providers. Behind the scenes, our personalization system is nudging them toward a successful retirement with targeted, personalized messages delivered to the channel they prefer—messages designed to help "on track" participants stay there and drive positive behavior for employees who are "off track."

Helping your participants prepare for retirement screenshot image

The results of our individualized retirement readiness approach have been encouraging: Since retirement readiness was added to the home page of our participant website in November 2017, more than 1.3 million participants have viewed it, more than 550,000 participants received personalized retirement readiness messages, and more than 70,000 increased their savings rate. In other words, people aren't just interacting with the retirement readiness tool—they are taking action toward achieving a more positive retirement outcome.

In short, our retirement readiness enhancements have equipped participants with tools that can help them identify how much they have saved, what it means, and what they should do next to have a better chance of retiring when they want to.

Helping plan sponsors meet evolving challenges

While participants focus on their own situation and rely on Vanguard to help guide them toward a more secure retirement, plan sponsors face the formidable challenge of getting a comprehensive picture of your workforce's total retirement assets.

To help plan sponsors address that challenge, Vanguard has introduced the Vanguard Plan Assessment for Retirement Readiness ("plan assessment"), a comprehensive analysis that tells you whether your employees are likely to have the replacement income they need in retirement. The plan assessment helps you answer three critical questions:

  • Will your employees have sufficient income when they reach retirement age?
  • How does your plan compare with others administered by Vanguard?
  • Is there potential to improve retirement outcomes through plan design or administration?

Replacement ratio is our key measure—the projected percentage of expected preretirement income that your employees will replace in retirement. We'll show you where your employees stand and offer recommendations for how you might improve their retirement readiness through plan design. We can model how changes in participant behavior, such as saving to the match or enrolling in automatic annual increases, would impact your plan's overall replacement ratio.  

We have seen the impact plan design has on retirement readiness. In the example below, we look at replacement ratios for a plan with automatic enrollment and model plan design changes that could take the plan closer to a target replacement ratio of 75%. The plan automatically enrolls participants at 3%, which earns it a replacement ratio of 44%. If we increase the automatic enrollment percentage to 6%, we see better results with the replacement ratio improving to 55%. The third scenario has the highest results—employees are automatically enrolled at 6% and their savings rates are automatically increased by one percentage point a year to a maximum of 15%. At retirement, they'll have a 72% replacement ratio. That big percentage lift is due to the addition of the automatic savings increase.

The impact of plan design

Replacement ratios

The impact of plan design charts
The impact of plan design charts

"Using the insights gleaned from the Vanguard Plan Assessment for Retirement Readiness, our ERISA consultants can work with you to identify and implement plan enhancements," Mr. Stinnett said. "Our communications consultants identify areas where targeted education can be used to supplement the messaging participants receive through our personalization system. Working collaboratively, we'll bring you integrated recommendations to give your participants a better chance of meeting their retirement goals."

SRC: Evolving plan consulting for better outcomes

Using the metrics that come from our personalization system and your plan data, SRC can work with you to improve retirement outcomes.

Historically, you've known SRC for its ability to help meet a wide range of retirement plan challenges, including fiduciary responsibilities and best practices, retirement plan design, ERISA and tax compliance, and the legal and regulatory policy environment. Our consulting offer has evolved to now include expertise in participant behavior and communication strategy. We believe this integrated approach will lead to better outcomes for both participants and plan sponsors.

"We've upgraded our consulting offer for plan sponsors by blending plan design and participant experience to help improve retirement outcomes," Mr. Stinnett said. "Add the fiduciary, regulatory, and legal consulting that have long been our trademark, and now SRC can work with you to implement solutions tailored to the needs of your company, your employees, and your plan."

Note: All investing is subject to risk, including the possible loss of the money you invest.