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We break down Vanguard's 'How America Saves' 2019 report

Erin Arvedlund, The Philadelphia Inquirer on

Published in Business News

Want some highlights of how Americans save for retirement? We read Vanguard's latest "How America Saves" 2019 report issued on Tuesday for trends and other takeaways.

Here are some key highlights from Vanguard's report on the popular workplace "defined contribution" (DC) retirement plans, those filled by matching contributions from the employee and the employer and do not promise specific benefits. More than 100 million Americans are covered by DC plan accounts, with assets of more than $7.5 trillion.

In 2018, the average account balance for Vanguard participants was $92,148; the median balance was $22,217.

In 2018, Vanguard participants' average account balances declined by 11% compared with 2017 and median account balances declined by 16 percent. (Note that this report looks at "defined contribution" retirement plans typically tax-deferred, like a 401(k) or a 403(b), not pension plans).

Three reasons: a changing business mix -- new plans converting to Vanguard recently have lower account balances; the rising adoption of automatic enrollment, which results in more individuals saving, but with smaller balances; 4 in 10 investors had joined their plan under automatic enrollment; and finally, U.S. markets dropped 6% in 2018.

Vanguard's median one-year investor total return was a loss of 6.5% in 2018. Five-year total returns averaged 5.2% annually.

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Among continuous investors -- those with balances at year-end 2013 and 2018 -- the record was far better. Median account balance rose by 78% over five years, reflecting ongoing contributions and the bull market.

Very little trading

During 2018, only 8% of "defined contribution" plan investors traded within their accounts, while 92% did not. That means more than 9 out of 10 Vanguard investors did NO trading last year. Talk about sticky assets!

On a net basis, there was a shift of 1.1% of assets to fixed income in 2018, with most making only small changes to their portfolios, the report said.

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