Is your
401(k) is on autopilot? If so, it may be time to take a look at it.
A
growing number of employers are adding automatic features to workplace
retirement-savings plans, which usually add new employees into the plans and
set workers’ contributions at 3 percent of pay.
Eleanor
Laise, associate editor of Kiplinger’s Retirement Report, said automatic 401(k)
saving features aren’t a fail-safe way to retirement success.
Laise
offers these suggestions:
Budging from the 3 percent
default rate –
Workers can always opt out of the auto-savings features, but they usually
don’t. On the plus side, the automation leads many who would otherwise save
nothing to steadily sock away a slice of their paycheck. But the 3 percent
default doesn’t come close to the savings rate needed for a secure retirement:
roughly 12 percent to 15 percent, according to financial planners.
The benefits of smarter
automatic features –
A jump to a 6 percent default contribution produces significant improvements in
retirement success rates for workers across income levels. With the higher
default contribution, nearly three out of four workers in the lowest quarter of
income levels would be on the path to a secure retirement, compared with just
62 percent under current default contribution rates.
Why employers are hesitant to
make the change
– No legal barrier exists to making the change, and the most commonly cited
employer objections aren’t insurmountable. Some argue that employees can’t
afford higher savings rates or that the cost of the employer matching the
contribution is an issue.
A
Vanguard study found that workers earning less than $300,000 contribute 50
percent more, on average, when left to their own devices in voluntary 401(k)
plans. And, employers could restructure the current match program so that the
higher default rate would cost them little or nothing and, at the same time,
give workers an incentive to save more.
For
details, visit http://www.kiplinger.com/article/retirement/T001-C022-S001-automatic-401k-saving-features-no-fail-safe-to-ret.
