Recent law changes and longer-standing trends in employer practices have positioned automatic enrollment as the norm in defined contribution retirement plans. While that’s good for savers entering the workforce, it can actually derail savings for mid-career professionals.
According to Fiona Greig, global head of investor research and policy at Vanguard, plans on average auto-enroll new employees at only a 3% salary deferral. They also tend to automatically escalate deferrals by only 1% each year up to a cap of 10% or less — if at all.
These numbers might be appropriate for young people starting their career with competing financial priorities like paying down student debt or establishing an emergency fund. But a 3% salary deferral is likely too low for mid-career professionals and pre-retirees who are encouraged to save between 10% and 15%, even with a generous employer match.
Greig explored this dynamic during a recent presentation at the American College of Financial Services’ inaugural Horizons retirement planning conference, and she recently published a written version of her research presentation. In both settings, she encouraged advisors to take action when their clients are switching jobs and remind them to “keep their savings on track.”
“Most people see a slowdown in their retirement savings rate when they switch jobs — often precisely when they’re getting a raise,” Greig said. “They stick with the default savings rate even if they’ve been saving more previously. An unconscious choice like this during those job changes could result in having nearly $300,000 less in retirement wealth.”
The slowdown, Greig explained, is just one of many frictions that job-changers can experience in their savings journey. It’s a big challenge for retirement security, as the average U.S. worker has at least eight jobs in their career.
“Job changes are among what I call the ‘moments that matter,’ when it’s critical to get good advice and to take action,” Greig said. “Simply by encouraging a client to get back to their prior savings rate or even consider ticking up the contribution rate after a job change and a raise, the advisor can make a real difference in the financial lives of their clients."
The Silver Tsunami
Greig pointed out that more people will turn 65 in the United States during 2025 than ever before, and it will take some three decades before a similar “silver tsunami” is reached when the peak of the millennial generation reaches traditional retirement age.
“On top of that, baby boomers have amassed $82 trillion in wealth — more than double that of the generation that came before them,” Greig said.
Boomers, of course, are poised to spend a lot of that wealth in retirement, especially on health care and supportive living arrangements.
“The truth is that many baby boomers have more than enough, but many are also likely to fall short of the necessary funding,” Greig observed. “And so we are primed to see either the greatest wealth or liability transfer that this country has ever seen.”
It’s an environment in which solid financial advice will be valuable to Americans across generations. The older generation will benefit from guidance on building sustainable retirement income plans, while younger generations will need advice about inheriting money and dealing with the “sandwich generation” challenge.
“Those surplus assets or retirement savings deficits are likely to land, disproportionately, in the hands of women, first as widows and then as daughters and granddaughters,” Greig said. “In a typical heterosexual married couple, the woman has a 7-in-10 chance of outliving her husband. Often, if she does so, she can expect to live another decade.”
Ultimately, these dynamics create both opportunity and risk.
Encouraging Investment and Savings
When Vanguard asked clients whether they considered themselves an “investor,” most women said “no,” as did 3 in 10 men. Instead, most people identified as savers.
“This is great news,” Greig said. “Consistent saving is the most powerful driver of reaching any financial goal. But savings alone aren’t sufficient for retirement. Investing savings helps them grow, and financial wellness best practices such as paying down debt and setting aside money for emergencies should also come into play.”
Fortunately, Greig noted, investing success doesn’t have to depend on what clients label themselves.
“It’s about what we do,” she concluded. “Everyone can make smart moves with their investments. Each aspect here offers an opportunity to create a moment that can matter for ourselves, our parents or the next in line. As baby boomers retire, it’s a great time to think about who’s next in line and to show up for them in those savings moments that matter most.”
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