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Keeping Up With Retirement Research

Highlights from noteworthy publications that are worth your time.

I try to keep up with the retirement-planning and retirement-income research papers. The volume of releases seems to be increasing as more attention gets focused on these areas, especially retirement income, but here are several noteworthy publications that I believe are worth your time.

How America Saves 2022


Having almost 5 million defined contribution plan participants covered by your record-keeping business generates a lot of data. As with the previous 20 editions, the latest version of Vanguard’s study provides a wide and deep look into retirement savings patterns.

The full report is over 100 pages long; here are a few key highlights.

  • The adoption of automatic enrollment has more than tripled since year-end 2007, the first year after the Pension Protection Act of 2006 took effect. At year-end 2021, 56% of Vanguard plans had adopted automatic enrollment, including 75% of plans with at least 1,000 participants. In 2021, because larger plans were more likely to offer it, 70% of participants were in plans with an automatic enrollment option.
  • Two-thirds of automatic enrollment plans have implemented automatic annual deferral rate increases. Additionally, automatic enrollment defaults have increased over the past decade. Fifty-eight percent of plans now default employees at a deferral rate of 4% or higher, compared with 32% of plans in 2012.
  • Ninety-nine percent of all plans with automatic enrollment defaulted participants into a balanced investment strategy in 2021—with 98% choosing a target-date fund as the default.
  • At year-end 2021, 64% of all Vanguard participants were solely invested in an automatic investment program—compared with 7% at the end of 2004 and 36% at year-end 2012. Fifty-six percent of all participants were invested in a single target-date fund; another 1% held one other balanced fund; and 7% used a managed account program.
  • Eighty-one percent of all participants used target-date funds and 69% of participants owning target-date funds had their entire account invested in a single target-date fund.
  • The average deferral rate was 7.3% in 2021, up modestly from 6.9% in 2012. The median deferral rate was 6.1% in 2021, in line with the past 10 years.
  • At year-end 2021, the Roth feature was adopted by 77% of Vanguard plans, and 15% of participants within these plans had elected the option.
  • During 2021, 8% of DC plan participants traded within their accounts, while 92% did not initiate any exchanges. On a net basis, there was a shift of 3% of assets to fixed income during the year, with most traders making small changes to their portfolios.
  • Plan sponsors are continually looking for ways to help retirees within the plan. In 2021, 64% of plans allowed retirees to take installments, and 37% of plans allowed for partial withdrawals.

Investing for Retirement Income

Mathieu Pellerin
Dimensional Fund Advisors

I’ve written about different methods for glide path construction in previous columns. In this 2021 paper, Mathieu Pellerin, a senior researcher with Dimensional Fund Advisors, examines how different asset allocations and spending strategies can support stable retirement income. The analysis assumes a hypothetical investor who starts saving at 25, retires at 65, and eventually passes away. Longevity is either fixed or simulated, based on a mortality table. An economic environment that includes stock market returns, interest rates and inflation is simulated for each period of the investor’s life.

Pellerin models three asset allocations or glide paths. Two allocations use what he calls a “wealth-focused” traditional glide path that combines equities and short-term nominal bonds, with the fixed income allocation increasing with the participant’s age. One path has a 50% equity allocation at the retirement date (the landing point) and the other has a 25% allocation.

The third glide path focuses on income, with the goal of reducing the volatility of retirement income instead of asset volatility. Per the paper: “The income-focused glide path combines a moderate equity landing point of 25% with a portfolio of inflation-indexed bonds that matches the duration of an inflation-indexed retirement income stream. Such an allocation is designed to address market, inflation and interest rate risk.” In addition, he evaluates four retirement spending strategies: fixed (similar to Bill Bengen’s 4% rule); flexible; a nominal annuity; and an inflation-indexed annuity. He then evaluates the glide paths and spending-rule combinations over a variety of simulated economic and investment market scenarios.

His conclusion: “We find that, for all spending strategies, an income-focused asset allocation delivers similar retirement income to the wealth-focused allocations we study while offering better protection against market, interest rate and inflation risk. We also find that a glide path with an LDI (liability driven investing) portfolio offers a better tradeoff between income growth and income risk management. Finally, our results suggest that high equity exposure in retirement is an inadequate tool to manage longevity risk.”

“You don't necessarily need a ton of equity exposure late in life to have a good retirement outcome,” Pellerin explained in a phone interview. “The fact is that you can have much better risk control while having a similar level of income to a more conventional asset allocation. I would have expected a more pronounced risk/return trade-off, but the results actually show that you can reduce your exposure without giving up too much expected income.”

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