Encouraging people to think seriously about their retirement savings strategy (and, even more importantly, acting upon it) is what we’re all about, and we recognize that “America Saves Week” serves as a reminder for those who may have let the subject slip their minds.
The week, which runs February 24 to March 1, is coordinated by America Saves and the American Savings Education Council. The former is a campaign managed by the non-profit Consumer Federation of America, while the ASEC is a national coalition of public- and private-sector institutions; both organizations are committed to making saving and retirement planning a priority for all Americans.
“America Saves Week” states that its objective is to provide an “opportunity for organizations to promote good savings behavior and a chance for individuals to assess their own saving status and ‘Set a Goal. Make a Plan. Save Automatically’.” While the first two parts of that mission statement are self-evident, the third is just as important.
Companies that offer an automatic enrollment feature with their 401(k) plans are doing their employees a favor. Though individual participation in a given company’s 401(k) is at around 70% (see “Retirement Plan Sponsors Helping Participants Engage”), there is obviously room for improvement.
You can probably guess at the reasons/excuses people usually give for not taking the time to enroll in a retirement plan: They feel there is no rush, and that they’ll get to it “soon” … or they simply forget about it.
By adopting such an attitude, employees are shortchanging themselves – and not just by failing to pay into the plan, but also by not taking advantage of the matching funds many employers offer. Auto enrollment solves this problem; the work is essentially done for employees.
But therein lies another challenge. Most auto enrollments start at around 3% of salary, and automatically escalate on an annual basis by a percentage point. We encourage people to start at a 5% to 8% rate and increase by a point each year. Fortunately, you can easily override that 3% provision in your company’s plan and set that enrollment number where you want.
It is important to note that you can also go below the 3% if you wish. Over the years I have met with thousands of participants nationwide who expressed the opinion that they simply cannot afford to save—usually because they believe they need to bite off a large percentage of their paycheck right off the bat.
That is simply not true. The point is to begin saving as soon as possible; no amount is too small. If an employee makes $300 a week, and puts just 1% of that into savings, he will be saving $3.00. Not an impressive amount, but it’s a start, and the employee will be pleasantly surprised 10 years later to see just how much he has saved.
To make this point to employees, use the “premium coffee” analogy. If they’re in the habit of purchasing a $5 latte every day before heading to work, but skip it just once a week, and put that $5 into retirement, they will have roughly $10,000 in savings over 20 years’ time.
“America Saves Week” and its urging to “Save Automatically” should serve as a wonderful call to arms.
Richard W. Rausser has more than 25 years of experience in the retirement benefits field. He is senior vice president of Client Services at Pentegra Retirement Services, a provider of retirement planning services to financial institutions and organizations nationwide, founded by the Federal Home Loan Bank System in 1943. Rausser oversees consulting, product development, client transition and marketing practice groups at Pentegra. He is a frequent speaker on retirement benefit topics; a Certified Pension Consultant (CPC); a Qualified Pension Administrator (QPA); a Qualified 401(k) Administrator (QKA); and a member of the American Society of Pension Professionals and Actuaries (ASPPA). He holds an M.B.A. in Finance from Fairleigh Dickinson University and a B.A. in Economics and Business Administration from Ursinus College.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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