American workers lapsed into investing inertia after the market collapsed in 2008, but standing still actually benefited many and helped their workplace retirement plan balances rebound by 31% between 2007 and 2010, Vanguard said this week.
What’s more, by the end of 2010 they had accumulated the highest average amount, $79,077, since the asset management firm started tracking the numbers in 1999. Vanguard published the findings in its “How America Saves 2011”, an annual report that examines retirement-planning trends.
In 2010, median account balances rose by 16%, and average balances were up 14% compared with 2009, largely a result of improving markets and the impact of ongoing contributions. Also, most participants had account balances at the end of 2010 that were higher than they were at the end of 2007. After Vanguard took a closer look at holdings for continuous participants -- those who had a balance at the end of both 2007 and 2010, it found that about 80% of participants had account balances that rose or stayed flat.
In another important development of the defined contribution funds, American savers are relying on professionally managed allocations more heavily. In these situations, the plan participant has put all of his or her funds into a single target-date or balanced fund, or into a managed account advisory service.
At the end of 2010, 29% of all Vanguard plan participants were solely invested in an automatic investment program, compared with only 9% five years ago.
But while Americans embraced automatic investment programs in 2010, they were less enthusiastic about automatic enrollment. At yearend 2010, 24% of Vanguard plans had adopted automatic enrollment, compared with about 21% in 2009.
Over a longer period, since 2005, automatic enrollment rates had quadrupled. Vanguard says it is still unclear whether the slowdown stems from current economic conditions, or if the use of automatic enrollment has reached a plateau.
After Vanguard dug a little deeper, it found that participants at large mining companies had an average account balance of $237,081, significantly higher than the average of all participants in Vanguards overall. That overshadowed the average $63,697 that participants in large information services companies had saved. Americans at those companies had socked away the lowest average amounts in their accounts.
The balances are only a partial measure of retirement preparedness for many participants. Age, plan tenures, expected Social Security income and assets are a truer reflection of how prepared Americans are for retirement, according to Vanguard.