‘Staying’ Power

  For years now, I’ve been saying that the only thing wrong with the 401(k) system is that there aren’t enough of them. And to be fair, the past several years have largely validated that view.

Indeed, Vanguard’s latest How America Saves report paints what is, on the surface anyway, a remarkably encouraging picture. Participation rates among eligible workers are near record highs. Contribution rates rose — 45% of participants increased their savings rate in 2025, contributing to an average savings rate of 12.1%, an all-time high. Professionally managed investments dominate participant portfolios. Most investors ignored market volatility entirely — and, doubtless as a result of all that — account balances reached new highs.

Yes, after decades spent worrying about employees failing to enroll, hunkering down in stable value funds, or panic-trading during downturns, the modern defined contribution system increasingly appears to be functioning as designed — or, as Vanguard labels it — a “quiet retirement revolution.”

But another recent study suggests that the industry may be misunderstanding what “success” actually looks like.

Morningstar’s paper, Access, Auto-Enrollment, and Accumulation: A Simulation of Universal Retirement Plan Coverage, modeled the impact of automatically enrolling workers without retirement plan access into a federally administered savings arrangement. The results are impressive. Tens of millions of additional workers could enter the retirement system. Hundreds of billions — perhaps more than a trillion dollars — in additional retirement savings could accumulate over time.

But buried deeper in the analysis is a more revealing point — the real breakthrough in retirement outcomes may not be access.

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It may be continuity.

The Vanguard report and the Morningstar study actually tell a surprisingly consistent story when viewed together. While Vanguard shows a system increasingly optimized around automation and default behaviors, Morningstar shows that the outcomes of even the best-designed system can be undermined if workers cannot remain continuously connected to savings long enough for compounding to matter.

And that matters. Big time. Particularly in view of the workers most vulnerable to those employment “disconnects;” lower-paid, minorities, women, the young…

Let’s face it. The retirement industry has spent much of the last two decades trying to solve the participation problem. In many respects, it has succeeded. Automatic enrollment, automatic escalation, target-date funds, managed accounts, and payroll deduction have fundamentally changed participant behavior — or perhaps more accurately, reduced the need for participant behavior altogether.

More recently, the focus has shifted toward expanding access to workplace programs — reinforcing how strongly availability, combined with automation, improves savings outcomes — even for workers with modest incomes.

But the Morningstar analysis highlights that workers with long periods of uninterrupted participation saw dramatically larger projected gains than workers with shorter or fragmented savings histories. Automatic enrollment helped. Higher default contribution rates helped somewhat. But it was remaining attached to the system through job changes, financial emergencies, and career transitions — that mattered more than almost anything else. “Workers with 10+ years of sustained participation could see 67% to 125% higher retirement wealth under auto‑enrollment scenarios,” according to the report.

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Leakage remains stubbornly high. The number, if not the amount, of hardship withdrawals continues to rise. Cash-outs during job transitions remain common — most particularly in situations where a participant loan is outstanding. Vanguard’s data itself hints at this tension: record balances existing alongside increasing hardship withdrawals. The system has become exceptionally good at getting money into retirement accounts — but still struggles to keep it there when life intervenes.

In other words, the retirement system may be healthier than it has ever been structurally — while on an individual basis many retirement savers remain financially fragile.

That tension becomes even more apparent when looking at which workers benefit most from expanded access proposals. Morningstar found the largest projected gains among lower-income households, younger workers, single women, Hispanic workers, and Black workers — populations historically less likely to have access to employer-sponsored plans.

For years, the policy focus has centered on access: state auto-IRAs, SECURE Act mandates, automatic enrollment requirements, and proposals to expand coverage. Those initiatives matter. They clearly move the needle — and will continue to do so.

But the future success of the defined contribution system may depend less on whether workers can open an account — and more on whether they can stay invested long enough for the system to work as intended.

• Nevin E. Adams, JD

Retirement Realities Better Than Pre-Retirement Perspectives

 If you read only the headlines from the latest Employee Benefit Research Institute Retirement Confidence Survey, the takeaway feels familiar: confidence is slipping, worries are rising, and concern about retirement readiness is once again in focus.

Seriously?

Look, once you move past the year-over-year decline[i] and look at the levels themselves, the picture changes shape. Yes, confidence is down from recent highs. But retirees, in particular, remain broadly confident in their ability to live comfortably in retirement despite all the “noise” about inflation, Social Security, and volatile markets. Roughly three-quarters still say they feel secure about their financial footing in retirement. That is not a fragile number. It is a resilient one.

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What stands out even more is how consistently the survey shows a gap between expectations and actual experience. Workers — still on the near side of retirement — are meaningfully less confident than those already in it. That pattern shows up again in the latest Retirement Confidence Survey, and it is one of the most important, if underappreciated, dynamics in the data. And why not? The drumbeat of bad economic news, unrealistic financial expectations, dramatically inflated lump-sum healthcare costs, and yes — lack of confidence — are incessant, even in this “longest-running survey of its kind.”

Considering the headline prisms journalists — and industry surveyors — routinely put in front of people, what else could you expect?

But — and as a current retiree — let me just affirm what the RCS is (still) telling us: retirement looks more uncertain when you are looking at it than when you are living it.

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That asymmetry is not surprising, but it is revealing. Before retirement, the risks are abstract and cumulative — markets, inflation, healthcare costs, longevity. They tend to stack in the imagination. After retirement, those same risks become real, but also more bounded. Income sources are visible. Tradeoffs are immediate. Decisions replace speculation.

The result is often not a dramatic sense of abundance, but something more important: manageability.

That does not mean retirees are carefree, or that pressures like inflation are irrelevant. The modest decline in confidence this year almost certainly reflects real household strain — and what I (still) consider to be a valid concern that lawmakers will fumble the Social Security (and Medicare) foundation. But it is still a decline within a relatively high band —movement from strong confidence to slightly less strong confidence, not from confidence to doubt. A slight dip, not a crash.

Let’s face it — the most overlooked (and certainly unreported) signal in the data: those actually in retirement are still, by and large, saying it works.

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Not perfectly. Not uniformly. But sufficiently — and more consistently than the pre-retiree mindset — or the headlines that fuel it — would suggest.

That gap between perception and experience is not closing. If anything, it remains one of the most durable features of retirement confidence research. And it carries an important implication: the further people are from retirement, the more uncertain it tends to feel. The closer they get — or the more they experience it — the more workable it often becomes.

Unfortunately, that is not a headline story — and it’s never going to get “clicks.” But it may be the real one worth paying attention to. 

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And maybe, just maybe, it’s one YOU should share.

• Nevin E. Adams, JD

 

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[i] Typical headlines included Retirement Confidence Among Workers, Retirees Slips to Lowest Point in Nearly a Decade, Retirement Confidence Falls as Social Security Concerns Mount, Workers' Retirement Confidence Hits 9-Year Low: EBRI, Americans Are Losing Confidence in Having Enough for Retirement, Survey Says - WSJ, Workers’ and retirees’ confidence for a comfortable retirement continues to decline amid fears of changing government programs - Pensions & Investments,

The ‘New’ 401(k) Retirement Savings ‘Problem’

 For years, the retirement industry has been obsessed with one key problem: people aren’t saving enough. Now, “suddenly,” we have another.

Retirees aren’t spending “enough.”

There’s a certain irony in that. After decades of urging discipline, restraint, and delayed gratification, we’re now concerned that retirees are too disciplined — that they’re depriving themselves of the very retirement they spent a lifetime preparing for.

Some of that is clearly a byproduct of the defined contribution system itself. We’ve spent years focusing workers on how much they can accumulate, not how much they can spend. Defined benefit plans answered a very different question: What will I get? Defined contribution plans leave retirees staring at a balance and wondering how long it will last. 

And once the paycheck stops, that question gets very real, very fast.

Because while you can model returns, you can’t model life. Inflation, healthcare costs, longevity—those aren’t just variables, they’re uncertainties. So yes, retirees tend to be cautious. Frankly, it would be surprising if they weren’t.

That hasn’t quieted a growing chorus worrying that retirees are being too cautious— “hoarding” assets out of fear they’ll run out of money before they run out of…life.

Distribution Defaults

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There’s some data behind that concern. The Employee Benefit Research Institute has long documented the extent to which retirees rely on required minimum distributions (RMDs). They don’t withdraw until they have to, and when they do, they tend to take …about what’s required. The RMD doesn’t just trigger withdrawals—it effectively defines them. Like it or not, the IRS life expectancy tables have become the default decumulation strategy.

And then there’s the work of David Blanchett and Michael Finke, which suggests retirees are far more comfortable spending income than they are dipping into savings. Frame it as income, and people spend it. Frame it as an asset, and they preserve it. Hence, the now-popular notion of a “license to spend.”

Now, I get it. As someone now in retirement (though not yet subject to RMDs), I’ve done the math. The 4% rule, the RMD tables, the various projections—all of them, in one way or another, are trying to answer the same question: how do I make this last? And how do I do that not just for me, but for my wife — who, actuarially speaking, is likely to outlive me?

As we approached retirement, we focused on two things: what we were spending (admittedly, figuring out retirement expenses is easier the closer you are to retirement), and what income we could count on. Social Security for both of us (for the moment, anyway), plus a couple of modest partial pensions, gave us something important—not just income, but reliable income. Enough to cover the basics of our chosen lifestyle. And yes, we spend that money just like we spent our pre-retirement paychecks.

What we didn’t do was annuitize the rest of our savings.

Puzzle Pieces

And that’s where some of this current messaging starts to feel …binary. Maybe that’s not the intent, but it’s often how it comes across: if income is good, more must be better—and converting a big chunk (or all) of your savings into an annuity is the logical next step.

And yet, even when the option is available, most still …don’t.

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This is what the academics label the annuity “puzzle” – the continued reluctance of American workers to embrace annuities as a distribution option for their retirement savings. It’s an academic headscratcher because they tend to assume workers are “rational” when it comes to complex financial decisions, specifically because “rational choice theory” suggests that at the onset of retirement, individuals will be drawn to annuities because they provide a steady stream of income and address the risk of outliving their income.

Human beings are, in fact, mostly rational (academics not always so much) – and, despite record annuity sales (outside of retirement plans) most human beings (still) can’t quite get their arms around the notion of handing the biggest sum of money they’ve ever seen over to an insurance company …which will then “dribble” it back to them in considerably smaller sums each month, albeit for the rest of their lives. 

The industry’s current “solution”? If they won’t buy it on their own – and if plan fiduciaries are (still) hesitant to put it on the menu – well, let’s default them into it - by embedding it in a target-date fund or managed account. Now, honestly, if a target-date fund is a “blunt” asset allocation instrument, how is defaulting participants with a myriad of personal financial and physical circumstances, retirement needs, and health concerns any less so?

Look, reliable lifetime income is valuable. In many cases, invaluable. It is the baseline for a successful retirement financial plan. But so is flexibility. So is liquidity. So is the ability to respond to whatever retirement actually throws your way. Things that the limits of “regular” lifetime income won’t address.

So, maybe don’t assume that the only way to give retirees a “license to spend” is to ask them to hand over the keys to the entire portfolio – certainly via a default mechanism they likely never really understood or appreciated.

And if that’s not what’s being suggested—if the intent is really about partial solutions, flexibility, and choice—then perhaps the messaging could use a little more clarity.

Because if I’m hearing it the other way, I’m probably not the only one.

— Nevin E. Adams, JD

Managed Accounts — It’s Not (Just) the Allocation

 Managed accounts have been praised, criticized, and litigated — often on the theory that they’re little more than expensive target-date funds. However, a recent report actually quantifies their impact — and turns out, it’s not an investment story, it’s behavioral.

That report — inauspiciously titled “The 2026 Managed Accounts Research Series: Analyzing the Value of Managed Accounts” — was published in mid-January by Morningstar. Of course, Morningstar has a fair amount of “skin” in the managed account space — a reason, if you will, to find a favorable outcome for the design. 

And, sure enough, the analysis claims that managed accounts outperform target-date funds and the efforts of so-called “do-it-yourself” investors for — well, everyone. More specifically, the report claims that MAs increase the median wealth/salary ratio at age 65 by 5.9% for TDF investors and by 11.4% for DIY investors. Across all plan participants, adopting an MA led to an overall increase of 7.7%. Oh, and it does even better for younger participants, and lower-income individuals.

At this point, my natural cynicism kicked in — though based on my personal and significant experience working with Jack VanDerhei, one of the coauthors, over a period of decades during his long-standing tenure at the Employee Benefit Research Institute (EBRI) — well, let’s just say if Jack says something is “so,” I tend to believe him.

Following the report publication, I had an opportunity to talk with Jack (and Spencer Look, his collaborator in this effort) to better understand their model. For those who haven’t stumbled across the report, they take a significant database of actual 401(k) plan balances and activity and apply sophisticated statistical behavioral modeling techniques to project long-term outcomes based on various assumptions. While it’s not unusual for researchers to deploy statistical modelling, most suffer from a lack of actual data, not only as a baseline, but as a behavioral predictor. Which, I should add, explains (to me, anyway) why the results often don’t match up with how real people respond/react in the real world. 

All that said, this kind of modelling is also dependent on the quality of the underlying assumptions — and here none is perhaps more focused on than cost. Here the assumptions are 40 basis points cost for managed accounts (plus another 31 basis points in fund fees), 30 basis points for target-date funds, and 73 basis points for the DIY group.  Don’t like those assumptions? VanDerhei is willing to plug in different numbers.

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I also questioned whether it makes sense to model “managed accounts” generically, given the wide variation in personalization, design, and cost. Look explained that their review of roughly half a dozen managed account structures — including but not limited to Morningstar’s — showed sufficient similarity to support a generalized model. The same held true for target-date funds.

But here is the part that matters.

As important as factors like cost and asset allocation (not to mention the cost of asset allocation) are to outcomes, the report acknowledges that “…higher contribution rates are the primary driver.” The researchers further note that, “based on our analysis of the empirical data, MA users consistently save more than TDF or DIY investors, even after controlling for age, wage, tenure, and plan design features” — a pattern they say “…suggests that personalized savings-rate recommendations[i] embedded within MAs play a key role in encouraging higher savings rates.” 

While you have to go to page seven of the 19-page report to find that,[ii] to my eyes, it is the most important sentence in it.

Now, I’ve long said that while we talk about “managed accounts” as though they are a monolithic concept, they are not. There are different — in some cases, widely different — levels of personalization deployed — variations in cost and construct. Anyone who ignores these potential underlying differences in application is missing the point. 

I will admit that in considering the value of managed accounts, I had — perhaps as many of you — tended to focus more on the differences in asset allocation that might be possible if we knew more than projected retirement date — not to mention variation in the underlying costs. What I had not factored in was what the Morningstar researchers have — the application of personalization to influence and impact savings rates. 

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If managed accounts meaningfully increase savings rates — not just tweak allocations — that changes the fiduciary conversation entirely.

Because better investing matters. But saving more matters more.

• Nevin E. Adams, JD

 

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[i] It’s worth noting here that the impact is smaller, but still positive, for AE with escalation plans, with TDF investors seeing an increase of 2.7% and DIY investors seeing an increase of 7.8%. Moreover, approximately 92% of AE plans with auto-escalation show an improvement in the median projected retirement wealth for TDF investors under the MA scenario. In other words, while automated increases in salary deferrals help, those timed and personalized via the managed account platforms provide a superior result.

[ii] It IS, however, right there with the first findings. Apparently, the folks who created the executive summary didn’t view it as being as significant as I did.

Who Wants Financial Wellness?

You might have missed it (I nearly did), but January has been declared “National Financial Wellness Month.”

The designation (apparently, it’s been so designated since 2011 or thereabouts) is meant to create a time where we’re all encouraged to pay closer attention to our financial well-being. Which, considering that we’ve just emerged from a season of what for many is one of “overspending,” January seems either a good time — or perhaps two months too late.

Seriously, while the numbers are modest, surveys (conducted primarily by those promoting or supported by promoters of those services) routinely show that some workers want[i] —  and even expect —  financial wellness type support from their employers. Not surprisingly, there are employers willing to accommodate this assumption, though —  depending on employer size, location, and source —  fewer than half do, with larger employers notably more likely to do so. And that’s with a truly fluid definition of what those services actually entail.

But do these programs actually work? The data —  and measurement —  is murky, to say the least.

The challenge starts with the fluid definition of what constitutes a financial wellness “program,” is further muddied by varying degrees of employer support, and ultimately compounded by (widely) varying means of measuring “success.” 

A recent survey by the Employee Benefit Research Institute (EBRI) found that the top factor in measuring the success of financial wellness initiatives was improved overall worker satisfaction, followed by increased employee productivity —  areas that might well benefit from financial wellness initiatives but are arguably influenced by a wider range of factors. 

Meanwhile, bottom-line measures such as reducing health care claims and costs were NOT commonly cited as top factors in measuring the success of financial wellness initiatives.

Little wonder that any kind of quantifiable ROI remains…elusive[ii].

But another —  and perhaps larger —  challenge remains: utilization. Transamerica recently reported that a consortium of industry experts[iii] only expects utilization by a third of individuals with access to those programs – despite their decades-long existence.  And that’s a future projection, supported by AI chatbots and the like in addition to human support.

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Indeed, despite the headlines proclaiming interest — it doesn’t take much effort to see that the surveys are finding an INCREASE in (modest) interest, rather than a commanding demand.

More’s the pity since there’s any number of signs that suggest American workers really need (if not want) the kind of financial guidance and help that these programs ostensibly could provide —  and not much sign that they’re inclined to seek it outside of the workplace[iv].

So, who wants financial wellness —  well, it’s hard to imagine someone who doesn’t, though they might not recognize it by that label or appreciate what it means.

Here’s hoping that THIS financial wellness month we’re able to help more folks both know about, and take advantage of, the available programs —  that we do a better job of defining what those programs are and can mean — and that the combination leads to more and better financial security for working Americans.

-          Nevin E. Adams, JD

 

[i] According to Bank of America’s 2025 Workplace Benefits Report (PDF), conducted in partnership with Bank of America Institute, 26% of the workforce is seeking help in areas such as emergency savings, paying down debt, and overall financial wellness, compared to 13% in 2023.  

[ii] But for what I still maintain is an interesting exercise, check out Building a Bottom Line on Financial Wellness.

[iii] Full disclosure – I’m among this group.

[iv] Setting aside the obvious concerns of the kind of help they might stumble into on their own.