How to Save More for Retirement Without Really Trying
Jason Zweig writes in the Wall Street Journal that while automatic enrollment has brought millions of new savers into 401(k)s, most employers set the default contribution rate at three percent. Because of inertia, most workers leave it there. The solution is to put savings increases on autopilot as well.
Opinion—Automatic Enrollment Over Tax Breaks
Bloomberg Businessweek contributing editor Chris Farrell thinks there is a better way of boosting retirement savings than tax breaks and savings caps. How about this idea instead: Repeal the tax break associated with 401(k)s, IRAs and similar tax-sheltered plans. Substitute automatic enrollment for the subsidies.
Eliminating the subsidy would boost the government’s budget—and the main beneficiary of the different approach would be average workers.
California’s Response to Retirement Savings Includes Auto-Enrollment
A new paper by Aleta Sprague of the New America Foundation dissects the State of California’s response to private sector employees who do not have access to defined contribution plans because their employers choose not to offer one. Key features of the California Secure Choice program include:
Automatic enrollment. All workers at firms of five or more employees will be automatically enrolled in the program, with the option to opt-out. Participants’ default contribution to their accounts will be three percent of each paycheck, though they can adjust this contribution level at any time.
Portability. Workers can move from job to job while maintaining their accounts. This feature reduces the likelihood that workers will cash out these accounts and have to start from scratch during a career change.
2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many
The Employee Benefit Research Institute (EBRI) reports that while more than half of respondents to their annual survey express some level of retirement confidence (13 percent are very confident and 38 percent are somewhat confident), 28 percent are not at all confident (up from 23 percent in 2012 but statistically equivalent to 27 percent in 2011).
Automatic enrollment at robust levels could help improve the retirement prospects of many employees.
If those not currently offered a plan were automatically enrolled in a retirement savings plan at a deferral rate of 6 percent of pay, 44 percent say they would continue contributing at that rate, 11 percent would increase it, and 24 percent would continue contributing but decrease the amount.
Automatic Features and the Power of Bundling
New research and analysis from Retirement Made Simpler and Lincoln Financial Group demonstrates just how much impact the bundling of automatic features can be when it comes to increasing employee participation and deferral rates.