Vanguard defined contribution plan participants’ saving rates may be close to providing adequate income replacement in retirement, new research shows.

The research paper, “The Vanguard Participant Saving Rate Index,” assesses whether participants in DC plans where Vanguard is the recordkeeper are saving optimally in their current workplace retirement plan. The paper says that 9 in 10 participants can achieve optimal saving rates in their workplace retirement plan with modest increases.

According to the research, 7 in 10 Vanguard DC plan participants are saving for retirement at rates that would enable them to attain a 65% income replacement rate, and a minor increase in elective deferrals—by 1, 2 or 3 percentage points—would enable 7 in 10 to achieve a 75% replacement rate.

Plan sponsors can help to boost participants’ insufficient saving rates by increasing their use of automatic enrollment—deliberately set at a proper default. That, combined with a robust employer match, is a powerful tool for employers to use to increase saving rates, the research suggests.

Auto-Aspects

The paper says that half of Vanguard plan participants are saving at or above their income-based target saving rates and are saving effectively. But that figure drops to 40% upon analysis of data on all employees eligible to participate in the plans, including those who have opted out.

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