Vanguard Reports Rosy Retirement Outlook

Are Americans on the right track in preparing for retirement? In the broad sense, no, most people aren’t saving enough.

But there are a few bright spots. A number of recent surveys have shown that investors with 401(k) plans have kept their nerve in the past couple of years, resisting the urge to panic and move everything to the sidelines when they suffered losses.

A new survey by the Vanguard Group has similar findings, causing the mutual fund company to proclaim investors in its various defined contribution plans “are well positioned for retirement security.”

That may be overreaching a bit, as Vanguard says the average account held just $69,000 at the end of 2009, far short of what the average person will need to fund a retirement that could last 30 years or more.

Still, Vanguard says the average account balance was up 23% from the end of 2008, thanks to new contributions and the stock market’s rebound. There was little evidence investors panicked after the stock market plunge of 2008. That’s definitely good news.

Vanguard assessed the accounts of 3.2 million participants in 401(k)s and similar defined-contribution plans. Vanguard says its typical plan member is a 45-year-old man saving 9.4% of his income and expecting to work another 20 to 25 years.

Clearly, more people got the message that retirement investing is a long-term process that takes a steady hand. Vanguard found that few account holders made withdrawals or took loans against their accounts, two behaviors that can dramatically undermine returns.

But Steve Utkus, head of Vanguard’s Center for Retirement Research, said that changes in the way companies set up defined-contribution accounts are responsible for many of the study’s most positive findings. Following changes in federal law, more and more companies are automatically enrolling new employees in these plans. Although workers have the right to opt out, experience at Vanguard and elsewhere has shown that participants tend to be relatively inattentive to their accounts, staying in once they start and sticking with their initial investment choices.