Despite the coronavirus pandemic’s impact in 2020, most retirement plan participants did not make trades, loan use fell and only a small minority took withdrawals.
by Anine Sus | August 2021
Despite the coronavirus pandemic’s impact in 2020, most retirement plan participants did not make trades, loan use fell and only a small minority took withdrawals.
Vanguard’s annual study, “How America Saves,” discovered that during 2020, 10% of defined-contribution (DC) plan participants traded within their accounts. However, 90% of participants did not make any trades.
The study elaborates, “Over the past decade, we have observed a decline in participant trading ... partially attributable to participants’ increased adoption of target-date funds. Only 4% of participants holding a single target-date fund traded in 2020.”
The study also found that “loan use declined by more than 20%” last year. Only 13% of participants had an outstanding loan in 2020, compared to 16% in 2015. Due to the CARES Act, participants were allowed to withdraw up to $100,000 from their retirement plan without incurring a penalty until December 30, 2020. However, only 5.7% of those with the option made withdrawals through coronavirus-related distributions.
Account balances increased by 30% in 2020. Even with the increase, median and average account balances varied depending on participants’ demographics. The study identified income, age and job tenure as the main factors affecting account balances. “Not only does income, on average, tend to rise somewhat with age, making saving more affordable, but older participants generally save at higher rates. Also, the longer an employee’s tenure with a firm, the more likely they are to earn a higher salary, participate in the plan, and contribute at higher levels.”
Another factor influencing account balances is gender. In the study, 56% of Vanguard participants are men and have average and median account balances nearly 50% higher than women’s account balances. “Gender is often a proxy for other factors, such as income and job tenure … Women in our sample tended to have lower incomes and shorter job tenure than men.” When account balances were compared across similar income levels, the difference was not as great. Women with incomes between $30,000 and $49,999 had average account balances within 4% of men’s balances. Deferral rates are slightly higher for women than men at most income levels.
Source: “How America Saves 2021.” Vanguard, June 2021.
Retirement Planning
Portfolio Strategies
Financial Planning
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