Jack Bogle, the 85-year-old founder of Vanguard Group, told an audience at the Pensions & Investments conference in New York earlier this week that his 401(k) plan is the largest investment he owns. "You would not believe how it has grown," he said.
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Bogle said he has had a defined contribution plan since he took his first job out of college in 1951 at Wellington Management, where he earned $250 a month. When he started Vanguard in 1974, he rolled his assets over into balanced index funds.
Jean Young, author of Vanguard Retirement Plan Access 2014 and a senior research analyst with Vanguard Center for Retirement Research, says Bogle keeps his money in Vanguard's Balanced Index Fund, where 60 percent of assets track the overall U.S. stock market and 40 percent is invested in an a broad assortment of bonds.
The secret to Bogle's success, Young says, is saving aggressively. "You have to take full advantage of your plan and put in the maximum." Young edits an annual retirement planning report card -- a portrait of the performance of Vanguard-managed 401(k)s and other defined contribution accounts. In 2013, the median participant account balance was $31,396 and the average was $101,650. Median and average account balances last year rose by 13 percent and 18 percent, respectively.
In short, it was a good year for many retirement savers. Young says participants with the best results in 2013 stuck to professional allocation strategies. For most Vanguard 401(k) participants, that meant putting their money in either a single target-date fund or a balanced index fund. Target-date funds provided among the most predictable and best outcomes in 2013. Meanwhile the greatest variation in returns could be found among participants who managed their own plans. Returns ranged from 2.1 percent to 19.4 percent.
Young advises a married couple, especially those earning more than $100,000, to save at least 12 percent to 15 percent annually, including the company match. If there are two earners in the family -- or you have retirement money from a source other than saving at work -- she suggests getting help balancing your savings strategy to reflect the total package.
Bogle also offered a basic tip to his fellow retirement savers. He said to be patient and don't look at the fund results too often. "The excitement [plan participants] will feel when they open that last statement will far exceed the boredom of indexed management," he said.