At Work

What are people thinking about their future?

Here is an interesting tidbit I found on HumbleDollar.com

AMONG NEW HIRES, participation in 401(k) and similar defined contribution plans is 93% when there’s automatic enrollment, versus 47% with voluntary enrollment, according to a Vanguard Group study.

It appears it’s not a matter of not being able to save, but rather not being able to take responsibility and sign up when an opportunity exists.

Imaging how much money that 46% who didn’t enroll could be losing just in an employer matching contribution.

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5 replies »

  1. If you are referencing “How America Saves”, Figure 30 shows the difference is 92% versus 57% participation. The differences are greatest at younger ages – under age 25, with automatic enrollment, 83% participate, without automatic enrollment, 21%, age 25 – 34, 92% versus 52%, ages 35 – 44, 92% versus 62%. However, it doesn’t get that much better at older ages 45 – 54, 55 – 64, and 65+ where, with automatic enrollment, participation is 93%, 93% and 90%, and without automatic enrollment it is 65%, 67%, and 59%, respectively.

    Simply, if the 401(k) is marketed as a retirement plan, only those people who have retirement as a financial priority will voluntary enroll. It is one reason why today’s policy experts are mistaken when they suggest that showing replacement rates will motivate greater savings. I suspect they will, but it will be a marginal improvement.

    The better solution is to focus individuals on wealth accumulation, and how that wealth can be used – without ever mentioning the word retirement. I coupled that marketing approach with perennially applied automatic features and in my last position as a plan sponsor, consistently achieved 95+% participation, 90+% at all ages.

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    • I agree with your approach of not using the word retirement. Thinking back 30+ years, life insurance and retirement made no sense to me just graduating high school. You spend your work week saving up for the weekend. You do not think past the next holiday. You cannot even comprehend 40 years later. Heck, you are still trying to find a girlfriend and when you do, you jump right into spending money for a house and children. You are lucky to be taking care of the short term bills so there is still no long term financial.

      I guess I was likely. The early 1980s, banks rolled out individual IRA and my company was working on payroll deduction for our small shop. Most of my coworkers were 10 to 20 years older than me with families and they saw the need. At max contribution I would have $50K at retirement. Also my grandparents started to retire so I became aware. I joined the NJANG in the hopes of serving 20 years to get $200 a month. If you use the information I was told it would amount to be about $367 a month. I can’t even pay my co-pays on my medical insurance with that amount. If I told a young person that, they would give up before even trying. How are they going to get $1m or $2m to fund their retirement?

      Wealth accumulation sounds better and implies of having money to use much sooner than 40 or 45 years from now. Lucky for me I got the message early and have done very well. I did make financial planning a priority when I was young.

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