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Understanding the retirement income dilemma
So, why is retirement income taking center stage now?
Eight in 10 workers would like help converting savings into income.1 At the same time, we’ve observed more and more participants keeping assets in their employer plans.
During 2022, about one-quarter of all participants could have taken their account as a distribution because they had separated from service in the current year or prior years, according to How America Saves 2023, an examination of Vanguard retirement plan data.
Most of these participants (81%) continued to preserve their plan assets for retirement by either remaining in their employer’s plan or rolling over their savings to an IRA or new employer plan. In terms of assets, 97% of all plan assets available for distribution were preserved, and only 3% were taken in cash.
Given such trends, it should come as little surprise that plan sponsors are increasingly looking to help their employees convert savings into income.
We can help you in the steps before AND after retirement
Target-date funds have greatly simplified retirement accumulation. Plan design has increasingly incorporated elements that make meeting participant savings goals more likely, such as automatic enrollment and automatic escalation. And advice has emerged to offer participants tangible, positive investor outcomes.
Utilizing these and other features, a well-designed retirement plan can bring participants to the summit of their savings journey. It’s a point at which an increasing number of participants are finding themselves and asking: What now?
We believe plan sponsors can help answer their participants’ retirement income questions with a comprehensive approach to retirement income—one that understands participants have differing needs and wants for retirement.
Each participant’s goals, risk tolerance, and resources are different, and their health, longevity, and tax situations are unique. There is no one-size-fits-all retirement income solution. Instead, Vanguard believes the most effective retirement income solution uses a mix of products and services to consider each participant’s individual needs.
A customizable approach
| Investment strategies | Participant guidance | Spending services | Access to advice | Access to annuities |
|---|---|---|---|---|
| Retiree-oriented investment solutions | Intuitive and engaging participant experience | Translate retirement assets into income | “Do it for me” or manage complexity | Connect participants to guaranteed income solutions |
| Target Retirement Income Funds and Trusts | Well on Your Way™ | Retirement Withdrawal Coach | Advice from Vanguard | Hueler Income Solutions® |
| Target Retirement Income and Growth Trust | Equity Landing Point Tool | Retirement Plan Paycheck | Advice powered by Edelman Financial Engines® | |
| Retirement Savings Trust | Personalized Participant Journeys and education | Actionable research | ||
| Fixed income investments | Retirement Readiness |
Investment strategies that enable individuals to manage their money through retirement. Vanguard Target Retirement strategies support spending goals with embedded asset allocations through retirement. Vanguard fixed income, money market, and stable value funds and trusts can be used to support their goals such as contingency reserves and legacies.
Participant guidance that inspires individuals to think about their situation, ask questions, and learn more about the many facets of retirement. Our goal is to put every participant at the center of a world-class support ecosystem that evolves as they build financial well-being and retirement security.
Spending services that demystify converting assets into retirement income. Our tools help participants understand how changing their retirement income or spending horizon affects their retirement outlook. Additionally, for plans offering installments, participants can readily implement “paychecks.”
Access to advice that helps individuals with complexity or those who want someone to “do it for them.” We offer advice options encompassing all stages of the financial journey, including leading to and living through retirement. It’s an inclusive approach, built so that every participant can access, understand, and implement the advice they need.
Importantly, the decision to use advice—or not—is not onetime or irrevocable. We recognize a participant’s best-fit approach will likely vary over time and with objectives.
Access to annuities that connect individuals to cost-effective guaranteed income solutions and help them assess their potential needs. Annuities may be appropriate for some—not all—participants. To ensure Vanguard supports these participants, we provide access to out-of-plan annuities through Hueler Income Solutions® Annuity Platform. This enables individuals to obtain institutionally priced, competitive income annuity quotes from multiple insurance companies on a conflict-free, no “pay-to-play” basis.
Partnering with you
Our multifaceted approach to retirement income provides customization to help participants achieve a broad range of financial goals. It also helps employers attract and retain both talent and assets.
Now is the time for plan sponsors to revisit their approach to retirement income. More and more participants are nearing retirement. They’re gathering at the top of the mountain and looking down, asking themselves: What do I do next?
Helping these participants begins with ensuring your plan offers the right mix of investment options that are aligned to your participants’ varying goals.
Next, make sure your participants can follow the best trail down the mountain by supplying them with spending guidance and advice backed by trusted research.
Vanguard can help. We have developed a holistic set of solutions to help plan participants get the most out of their retirement.
Notes:
- For more information about Vanguard funds, visit vanguard.com or call 800-523-1036 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
- All investing is subject to risk, including the possible loss of the money you invest.
- Investments in Target Retirement Funds and Trusts 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 a Target Retirement Fund is not guaranteed at any time, including on or after the target date.
- Vanguard is responsible only for selecting the underlying funds and periodically rebalancing the holdings of target-date investments. The asset allocations Vanguard has selected for the Target Retirement Funds are based on our investment experience and are geared to the average investor. Investors should regularly check the asset mix of the option they chose to ensure it is appropriate for their current situation. Vanguard Target Retirement Trusts are not mutual funds. They are collective trusts available only to tax-qualified plans and their eligible participants. Investment objectives, risks, charges, expenses, and other important information should be considered carefully before investing. The collective trust mandates are managed by Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc.
- Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.
- The Vanguard Group has partnered with Financial Engines Advisors L.L.C. (FEA) to provide subadvisory services to the Vanguard Managed Account Program and Personal Online Advisor. FEA is an independent, federally registered investment advisor that does not sell investments or receive commission for the investments it recommends with respect to the services which it is engaged in as subadvisor for Vanguard Advisers, Inc. (VAI). Advice is provided by Vanguard Advisers, Inc. (VAI), a federally registered investment advisor and an affiliate of The Vanguard Group, Inc. (Vanguard). Vanguard is owned by the Vanguard funds, which are distributed by Vanguard Marketing Corporation, a registered broker-dealer affiliated with VAI and Vanguard. Neither Vanguard, FEA, nor their respective affiliates guarantee future results. Vanguard will use your information in accordance with Vanguard’s Privacy Policy.
- Edelman Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All rights reserved. Used with permission.