Which is Better?
As someone who’s spent years navigating the complex world of retirement planning, I’ve seen firsthand how choosing the right retirement plan provider can make a significant difference in your financial future. Empower Retirement and Vanguard are two giants in the retirement services industry, each with it’s own strengths and unique offerings.
Whether you’re just starting your career or nearing retirement, understanding the differences between these two providers is crucial for making an informed decision about your financial future.
Company Backgrounds: A Tale of Two Titans
Empower Retirement and Vanguard have very different origins and philosophies, which significantly influence their approach to retirement services.
Empower Retirement is a relatively new player in the field, formed in 2014 through the merger of several established financial services companies. Despite it’s youth, Empower has quickly become the second-largest retirement services provider in the United States, managing over $1.1 trillion in assets for more than 12 million participants.
Empower’s rapid growth can be attributed to it’s aggressive acquisition strategy and focus on technology-driven solutions. The company has invested heavily in digital platforms and personalized services, aiming to provide a more tailored experience for retirement savers.
Vanguard, on the other hand, is a veteran in the investment world. Founded in 1975 by John C.
Bogle, Vanguard revolutionized the industry by introducing the first index mutual fund for individual investors.
This innovation laid the groundwork for Vanguard’s philosophy of low-cost, passive investing that has become increasingly popular over the past few decades.
Today, Vanguard manages a staggering $7 trillion in global assets and is renowned for it’s low-cost investment options and client-owned structure. This unique ownership model means that Vanguard is owned by it’s funds, which are in turn owned by their shareholders.
This structure allows Vanguard to focus on keeping costs low for investors as opposed to maximizing profits for external shareholders.
Investment Options: Diversity vs. Simplicity
When it comes to investment options, both Empower Retirement and Vanguard offer a wide range of choices, but their focus differs significantly.
Empower Retirement provides a diverse array of investment options, including actively managed funds, target-date funds, and index funds. They also offer self-directed brokerage options for more hands-on investors.
This variety can be appealing for those who want more control over their investment choices or believe in the potential of active management to outperform the market.
Empower’s actively managed funds are run by professional fund managers who aim to beat market benchmarks. These funds can potentially offer higher returns, but they also come with higher fees and the risk of underperforming the market.
Empower’s target-date funds, which automatically adjust their asset allocation as you approach retirement, are designed to provide a simple, all-in-one solution for investors who prefer a hands-off approach.
Vanguard, true to it’s roots, emphasizes low-cost index funds and ETFs. While they do offer some actively managed funds, their core philosophy revolves around passive investing.
Vanguard’s founder, John Bogle, was a strong advocate for index investing, arguing that most active managers fail to consistently outperform the market over the long term.
Vanguard’s index funds aim to track the performance of specific market indexes, such as the S&P 500. These funds offer broad market exposure at a very low cost.
Vanguard’s target-date funds, known as LifeStrategy funds, are popular among investors looking for a hands-off approach to retirement planning.
These funds automatically rebalance and adjust their asset allocation over time, becoming more conservative as the target retirement date approaches.
Fees and Expenses: The Hidden Retirement Killer
One of the most critical factors in choosing a retirement plan provider is the fees and expenses associated with their services. Over time, even small differences in fees can have a significant impact on your retirement savings.
Vanguard has built it’s reputation on offering some of the lowest fees in the industry. Many of their index funds have expense ratios below 0.1%, which is significantly lower than the industry average.
For example, Vanguard’s Total Stock Market Index Fund (VTSAX) has an expense ratio of just 0.04%.
This means that for every $10,000 invested, you’re paying only $4 per year in fees.
This low-cost approach can lead to substantial savings over the long term, allowing more of your money to grow through compound interest. To illustrate this point, let’s consider an example:
Imagine you invest $100,000 in a fund that earns an average annual return of 7% over 30 years. With an expense ratio of 0.04% (typical for a Vanguard index fund), your investment would grow to about $749,000.
However, if the expense ratio were 1% (more typical for actively managed funds), your investment would only grow to about $574,000.
That’s a difference of $175,000 – all because of fees!
Empower Retirement’s fee structure is generally higher than Vanguard’s, particularly for their actively managed funds. However, they argue that the potential for higher returns from active management can offset the higher fees.
Empower’s fees can vary widely depending on the specific plan and investment options chosen.
Some of their actively managed funds have expense ratios above 1%, while their index fund offerings are more competitively priced.
Be aware that fees can vary depending on the specific plan and investment options chosen. For employer-sponsored plans, the fees may also include administrative costs that can vary from plan to plan.
Always review the fee disclosures carefully and consider the impact of fees on your long-term savings.
Employer-Sponsored Plans: Flexibility vs. Simplicity
For many people, their primary interaction with a retirement services provider is through their employer-sponsored plan. Both Empower Retirement and Vanguard offer 401(k) plans, but there are some key differences in their approaches.
Empower Retirement has a strong focus on employer-sponsored plans, offering a wide range of options including 401(k), 403(b), and 457 plans. They provide robust plan administration and support services, which can be particularly appealing to employers looking for a comprehensive solution.
Empower’s platform offers a high degree of customization for employers. They can tailor the investment lineup, add features like automatic enrollment and escalation, and integrate the retirement plan with other employee benefits.
Empower also provides extensive reporting and analytics tools to help employers watch plan performance and employee participation.
For employees, Empower offers a user-friendly interface with personalized retirement income projections and goal-setting tools. Their mobile app allows participants to easily manage their accounts, check balances, and make contribution changes on the go.
Vanguard also offers employer-sponsored plans, but their options may be more limited in terms of customization. However, their simplicity and low costs can be attractive to both employers and employees.
Vanguard’s approach to employer-sponsored plans aligns with their overall philosophy of keeping things simple and cost-effective.
Vanguard’s 401(k) plans typically feature a streamlined investment lineup heavily weighted towards their low-cost index funds. This simplicity can make it easier for employees to make investment decisions and can help keep overall plan costs down.
Vanguard also offers target-date funds as a default investment option, providing a simple solution for employees who prefer a hands-off approach.
For plan sponsors, Vanguard provides comprehensive fiduciary support and plan design consulting. They also offer robust educational resources to help employees make informed decisions about their retirement savings.
Individual Retirement Accounts (IRAs): A Personal Touch
For those looking to supplement their employer-sponsored plans or save independently, both Empower Retirement and Vanguard offer Individual Retirement Accounts (IRAs).
Empower Retirement provides traditional and Roth IRAs, as well as SEP and SIMPLE IRAs for small businesses. Their IRA offerings come with access to their comprehensive financial wellness platform, which can be a valuable tool for holistic retirement planning.
Empower’s IRA platform allows investors to choose from a wide range of investment options, including individual stocks, bonds, mutual funds, and ETFs. They also offer managed account options for those who prefer professional guidance.
Empower’s financial wellness tools can help you track your progress towards retirement goals and provide personalized recommendations based on your financial situation.
One unique feature of Empower’s IRA offering is their “Empower Retirement IRA Analyzer.” This tool helps you compare different IRA options and decide which type of IRA might be best suited for your situation. It takes into account factors like your current income, tax bracket, and retirement goals.
Vanguard’s IRA offerings are known for their simplicity and low costs. They offer a full range of IRA options, including traditional, Roth, SEP, and SIMPLE IRAs.
Vanguard’s user-friendly interface and extensive educational resources make it easy for individual investors to manage their IRAs effectively.
When you open an IRA with Vanguard, you gain access to their full lineup of low-cost mutual funds and ETFs. This includes their popular index funds and target-date retirement funds.
Vanguard doesn’t charge any account maintenance fees for their IRAs, which can help maximize your savings over time.
Vanguard also provides a variety of tools and calculators to help you plan for retirement. Their retirement income calculator, for example, can help you estimate how much you need to save to reach your retirement goals.
They also offer extensive educational resources, including articles, videos, and webinars on topics related to retirement planning and investing.
Financial Advice and Planning: Human Touch vs. Robo-Advisors
As the retirement landscape becomes increasingly complex, many investors are seeking professional advice to help navigate their financial futures. Both Empower Retirement and Vanguard have adapted to this change, but with different approaches.
Empower Retirement offers personalized advice through their ‘My Financial Path’ platform. This service combines digital tools with access to human advisors, providing a comprehensive approach to financial planning.
The platform offers retirement income projections, goal-setting tools, and personalized recommendations.
With ‘My Financial Path,’ you can input your financial information, including your current savings, income, and retirement goals. The platform then uses this information to create a personalized retirement strategy.
It takes into account factors like your risk tolerance, expected Social Security benefits, and potential healthcare costs in retirement.
One of the strengths of Empower’s approach is the combination of digital tools with human expertise. While the platform provides automated recommendations, you also have the option to speak with a financial advisor to discuss your plan in more detail.
This can be particularly helpful for people who have complex financial situations or those who prefer a more personal touch.
Vanguard’s approach to financial advice is embodied in their ‘Vanguard Personal Advisor Services.’ This hybrid model combines robo-advising with access to human financial advisors. The service is known for it’s low fees (typically 0.30% of assets under management) and comprehensive approach to financial planning.
When you sign up for Vanguard Personal Advisor Services, you’ll start by providing information about your financial situation and goals. Vanguard’s algorithm then creates a personalized investment strategy based on this information.
What sets this service apart is that a human advisor reviews this plan before it’s presented to you.
You’ll have the opportunity to speak with a financial advisor to discuss your plan and make any necessary adjustments. These advisors are fiduciaries, meaning they are legally obligated to act in your best interest.
They can provide guidance on a wide range of financial topics, from retirement planning to tax-efficient investing strategies.
One of the key advantages of Vanguard’s approach is it’s low cost. At 0.30% of assets under management, it’s significantly cheaper than many traditional financial advisory services.
This low fee, combined with Vanguard’s use of low-cost index funds, can result in significant savings over time.
Both Empower and Vanguard’s advisory services can be valuable tools for retirement planning. The choice between them may come down to personal preference – whether you prefer a more digitally-focused approach with the option for human interaction (Empower) or a hybrid model that emphasizes human advice supported by technology (Vanguard).
Online Tools and Resources: Empowering the DIY Investor
In our increasingly digital world, the quality of a provider’s online tools and resources can make a significant difference in the user experience. Both Empower Retirement and Vanguard offer robust digital platforms, but with different strengths and focuses.
Empower Retirement offers a comprehensive financial wellness platform that includes retirement income projections, budgeting tools, and educational resources. Their mobile app allows users to manage their accounts on the go, check balances, and make contributions.
Empower’s online platform is designed to provide a holistic view of your financial life. The retirement income projection tool, for example, takes into account not just your retirement account balances, and factors like Social Security benefits, pension income, and other savings.
This can give you a more accurate picture of your retirement readiness.
The budgeting tools offered by Empower can help you track your spending and identify areas where you might be able to save more for retirement. You can link your bank accounts and credit cards to get a comprehensive view of your finances all in one place.
Empower also provides a variety of educational resources, including articles, videos, and webinars on topics ranging from basic investing concepts to advanced retirement planning strategies. These resources are designed to help you make more informed decisions about your retirement savings.
Vanguard is known for it’s extensive educational resources, including articles, videos, and webinars on various investment topics. Their portfolio analysis tools are particularly robust, allowing investors to take a close look at their asset allocation and performance.
Vanguard’s online platform is designed with simplicity and ease of use in mind. Their account dashboard provides a clear overview of your investments, including performance data and asset allocation information.
The portfolio analysis tool allows you to look further, providing insights into your portfolio’s diversification, risk level, and potential areas for improvement.
One of Vanguard’s standout features is their investment comparison tool. This allows you to compare different mutual funds and ETFs side by side, looking at factors like performance history, expense ratios, and risk metrics.
This can be incredibly helpful when deciding which investments to include in your retirement portfolio.
Vanguard also offers a robust retirement planning calculator. This tool allows you to input detailed information about your current financial situation and retirement goals.
It then provides projections of your retirement income and suggestions for how to improve your retirement readiness.
Vanguard’s mobile app is highly rated, offering a user-friendly interface for account management and investment research. You can use the app to check your balances, make trades, and even deposit checks directly into your Vanguard accounts.
Both Empower and Vanguard offer strong digital platforms, but with different strengths. Empower’s platform may be more appealing to those looking for a comprehensive financial wellness solution, while Vanguard’s tools might be preferred by those who want to take a close look at investment analysis and portfolio management.
Customer Service: The Human Element
While digital tools are important, sometimes you need to speak to a real person. The quality of customer service can make a big difference, especially when dealing with something as important as your retirement savings.
Empower Retirement has received mixed reviews for it’s customer service. Some users report quick and helpful responses, while others have experienced long wait times and difficulty resolving complex issues.
However, they do offer dedicated support for both plan participants and employers.
Empower provides customer service through multiple channels, including phone, email, and live chat. They also offer a virtual assistant on their website that can answer common questions.
For employer-sponsored plans, Empower provides dedicated account managers to help with plan administration and any issues that may arise.
One area where Empower has received praise is their handling of rollovers and account transfers. Many users report that Empower’s representatives are knowledgeable and helpful in guiding them through these often complex processes.
However, some users have reported frustration with long wait times, particularly during peak periods like the end of the year or during major market events. There have also been some complaints about inconsistency in the quality of service provided by different representatives.
Vanguard’s customer service is generally well-regarded, with representatives known for their knowledge and helpfulness. However, because of high demand, wait times can sometimes be longer than desired. Vanguard’s client-owned structure means that their interests are aligned with those of their customers, which can translate into a more customer-focused approach to service.
Vanguard offers customer service through phone, email, and secure messaging through their website. They also provide extensive FAQs and self-service options on their website, which can help decide many common issues without needing to contact a representative.
One of the strengths of Vanguard’s customer service is the depth of knowledge of their representatives. Many users report that Vanguard’s reps are able to provide detailed, helpful answers to complex questions about investing and retirement planning.
This can be particularly valuable for investors who are looking for more than just basic account support.
However, Vanguard has faced criticism for long wait times, particularly for phone support. This issue has been exacerbated in recent years as Vanguard’s popularity has grown.
Some users have reported wait times of an hour or more during busy periods.
Both Empower and Vanguard have areas of strength and weakness when it comes to customer service. Empower may have an edge in terms of accessibility and support for employer-sponsored plans, while Vanguard may have an advantage in terms of the depth of knowledge of their representatives.
Your personal experiences may vary, and it’s worth considering customer service as one factor among many when choosing a retirement services provider.
Performance: The Bottom Line
At the end of the day, the performance of your investments is what will decide the size of your retirement nest egg. However, comparing performance between Empower Retirement and Vanguard isn’t straightforward because of their different investment philosophies.
Empower Retirement’s actively managed funds may outperform in certain market conditions, potentially justifying their higher fees. Active management allows fund managers to make tactical decisions based on market conditions, potentially capitalizing on short-term opportunities or protecting against downside risk.
For example, during periods of market volatility, skilled active managers may be able to adjust their portfolios to minimize losses or even find opportunities for gains. Some of Empower’s actively managed funds have indeed outperformed their benchmarks over certain time periods.
However, be aware that consistently beating the market over the long term is notoriously difficult. Numerous studies have shown that the majority of actively managed funds underperform their benchmark indexes over extended periods, especially after accounting for fees.
Vanguard’s index funds are designed to match market performance as opposed to beat it. While this means you won’t outperform the market, it also means you’re unlikely to significantly underperform.
Over the long term, this consistent performance, combined with low fees, has proven to be a winning strategy for many investors.
Vanguard’s approach is based on the efficient market hypothesis, which suggests that it’s extremely difficult to consistently outperform the market because prices already reflect all available information. By offering low-cost index funds, Vanguard aims to provide investors with market returns minus a very small fee.
This approach has been remarkably successful over time. For example, Vanguard’s flagship S&P 500 index fund has closely tracked the performance of the S&P 500 index over it’s entire history, providing investors with returns that have outpaced the majority of actively managed funds in the same category.
When comparing performance, it’s crucial to look at returns over long time periods and to consider returns net of fees. A fund that outperforms by 1% but charges 1% more in fees isn’t providing any net benefit to investors.
It’s also important to consider risk-adjusted returns. Some actively managed funds may post higher returns, but they may also be taking on significantly more risk to achieve those returns.
Tools like the Sharpe ratio, which measures return per unit of risk, can be helpful in making these comparisons.
Ultimately, the choice between Empower’s more active approach and Vanguard’s passive strategy may come down to your personal investment philosophy and risk tolerance. Some investors may prefer the potential for outperformance offered by active management, while others may prefer the consistency and low costs of index investing.
Making Your Choice: Factors to Consider
Choosing between Empower Retirement and Vanguard ultimately depends on your personal financial situation, investment philosophy, and retirement goals. Here are some key factors to consider:
Investment philosophy: Your personal beliefs about investing should play a significant role in your decision. If you believe in active management and are willing to pay higher fees for the potential of market-beating returns, Empower Retirement might be more aligned with your views.
Their range of actively managed funds and more hands-on approach could appeal to those who believe in the ability of professional managers to outperform the market.
On the other hand, if you prefer a passive, low-cost approach, Vanguard could be the better choice. Vanguard’s philosophy of low-cost index investing has proven effective for many investors over the long term.
If you believe that it’s difficult to consistently beat the market and want to minimize fees, Vanguard’s offerings may be more suitable.
Employer-sponsored plans: If your employer offers a plan through one of these providers, that might be the deciding factor. Many people find it convenient to have their primary retirement savings with the provider chosen by their employer.
This can simplify things like payroll deductions and employer matching contributions.
However, remember that you can always open an IRA with the other provider to diversify your retirement savings. This can give you access to the strengths of both providers.
Fees: Consider the long-term impact of fees on your retirement savings. Even small differences in fees can add up significantly over time because of the power of compound interest.
Vanguard is known for it’s exceptionally low fees, particularly on it’s index funds.
While Empower may offer funds with higher fees, they argue that the potential for higher returns can offset these costs.
To understand the impact of fees, consider using an investment fee calculator. These tools can show you how much of your returns are being eaten away by fees over time.
Investment options: Think about whether you prefer a wide range of choices or a more streamlined selection of low-cost funds. Empower offers a broader range of investment options, including more actively managed funds and choice investments.
This can be appealing if you want more control over your investment choices or are interested in more specialized investment strategies.
Vanguard, while offering a comprehensive range of funds, has a more focused lineup centered around low-cost index funds and ETFs. This simplicity can make decision-making easier for many investors.
Additional services: Consider the value of extra features like financial wellness programs, advisory services, and educational resources. Empower’s comprehensive financial wellness platform might be particularly appealing if you’re looking for a more holistic approach to financial planning.
Vanguard’s robust educational resources and low-cost advisory services could be attractive if you’re looking to expand your investing knowledge or want professional guidance at a low cost.
User experience: Look at the quality of online tools, mobile apps, and customer service to ensure you’re comfortable with the day-to-day experience of managing your retirement accounts. Both providers offer strong digital platforms, but you may find that one suits your needs better than the other.
Consider trying out the demo versions of their platforms if available, or reading user reviews to get a sense of the user experience.
Long-term outlook: Consider your long-term financial goals and which provider is best equipped to help you reach them. Think about factors like the level of guidance you’ll need, how hands-on you want to be with your investments, and what types of investment strategies align with your risk tolerance and financial goals.
Remember, there’s no one-size-fits-all solution when it comes to retirement planning. What works best for you will depend on your unique circumstances and goals.
Take the time to research thoroughly, consider your options carefully, and don’t hesitate to seek professional advice if needed.
By understanding the strengths and weaknesses of both Empower Retirement and Vanguard, you’ll be better equipped to make an informed decision about your retirement savings. Whether you choose the diverse options and comprehensive services of Empower Retirement or the low-cost, passive approach of Vanguard, the most important thing is that you’re taking active steps towards securing your financial future.
Frequently Asked Questions
What is the difference between Empower Retirement and Vanguard?
Empower Retirement offers a wider range of investment options, including more actively managed funds, and provides comprehensive employer-sponsored plans. Vanguard is known for it’s low-cost index funds and client-owned structure, emphasizing passive investing strategies.
Are Vanguard fees lower than Empower Retirement?
Generally, yes. Vanguard is renowned for it’s low fees, especially on index funds.
Empower Retirement’s fees can be higher, particularly for actively managed funds, but they argue that potential higher returns may offset these costs.
Can I have both an Empower Retirement and a Vanguard account?
Yes, you can have accounts with both providers. Many people have an employer-sponsored plan with one provider and an Individual Retirement Account (IRA) with another.
Which is better for a 401(k) plan, Empower Retirement or Vanguard?
Both offer strong 401(k) plans. Empower Retirement provides more customization options for employers, while Vanguard typically offers simpler, lower-cost plans.
The best choice depends on the specific needs of the employer and employees.
Does Vanguard offer financial advisory services?
Yes, Vanguard offers financial advisory services through their Personal Advisor Services program, which combines robo-advising with access to human financial advisors.
How does Empower Retirement’s financial wellness platform work?
Empower’s financial wellness platform provides tools for budgeting, retirement income projections, and goal setting. It aims to give users a comprehensive view of their financial situation and provide personalized recommendations.
Can I invest in individual stocks through Empower Retirement or Vanguard?
Both providers allow investing in individual stocks, typically through a self-directed brokerage option in employer-sponsored plans or through their IRA offerings.
How do I choose between Empower Retirement and Vanguard for my IRA?
Consider factors like investment options, fees, user interface, and customer service. Vanguard might be preferable if you favor low-cost index investing, while Empower could be better if you want a wider range of investment options.
What types of retirement accounts does Empower Retirement offer?
Empower Retirement offers various retirement accounts including 401(k), 403(b), 457, and IRA (Traditional, Roth, SEP, and SIMPLE) plans.
Does Vanguard offer actively managed funds?
Yes, Vanguard does offer some actively managed funds, but their primary focus and most popular offerings are their low-cost index funds and ETFs.
Key Takeaways
- Empower Retirement offers a wider range of investment options and comprehensive employer-sponsored plans.
- Vanguard is known for it’s low-cost index funds and client-owned structure.
- Fees can significantly impact long-term retirement savings, with Vanguard generally offering lower fees.
- Both providers offer robust online tools and resources, but with different focuses.
- The choice between Empower Retirement and Vanguard depends on your personal investment philosophy, financial situation, and retirement goals.