Don’t Settle for Auto Enrollment—Push for Higher Contributions

by | Feb 13, 2019 | 401(k), 401(k) Participant Education, Growing Advisors Business, Retirement Readiness

Don’t Settle – Get Higher Contributions

A 2018 study by J.P. Morgan shows that automatic enrollment increases the number of Americans saving for retirement. This is an important step in the right direction, but are they saving enough? The 401(K) market space has significant room for higher AUM and participant engagement. Ready! Fire! Aim? 2018, a J.P. Morgan report correlates current trends with the future implications of participants’ saving patterns—as well as insights into how advisors serving 401(k) plans can increase their business.

RetireReady Solutions believes education is the key to navigating the challenges of guiding clients through retirement years, helping young Americans establish a secure financial future, and increasing AUM for advisors.

More than 51% of 25-year-old participants in J.P. Morgan’s study began saving for retirement due to an automatic enrollment program. Multiple studies have shown that these programs improve participation. If participation is the goal, that’s great. But when a significant segment of participants doesn’t move beyond an average 3.3% contribution rate, auto-enrollment by itself is insufficient.

Once enrolled, younger employees need a push to increase their contribution rates. This can be done by implementing automatic contribution escalation programs or by helping participants visualize the impact of increased savings early in their careers. Given spending trends around retirement age, a 3.3% contribution rate simply won’t be sufficient for a comfortable retirement.

The study identified “subsequent shifters” as those who were auto-enrolled and later made rate changes, showing steady growth in their contribution rates. This group’s rate started at 5.5% at age 25, increased to 6.9% at age 45, and landed at 8.2% at age 65. While it’s no surprise that higher-income earners tend to contribute at the highest rates, those rates still fall short of the 10% recommended by many industry professionals. Middle- and lower-income earners tend to save less, borrow more, and withdraw earlier, pointing to a definite need for more education.

J.P. Morgan found that 56% of households experienced spending volatility as they entered retirement, and only 28% of participants remained in the plan three years after retirement. Spending in retirement is highly personal, based on an individual’s history, current situation, and personality. To educate plan participants on their retirement savings, plan sponsors should provide adequate resources or make professional advising available for participants. RetireReady Solutions provides a visual and interactive outlook of an individual’s retirement plan—an asset that can differentiate you as a top-service advisor.

Drawing on over 30 years of experience, RetireReady Solutions provides advisors the tools they need to engage participants with a personalized education that motivates participants to take action. Download a demo or check out upcoming webinars to explore comprehensive tools for one-on-one or group retirement planning. Visit our 401k Solutions page or call 503.831.1111 for more information.


 

Download a Free Trial of our TRAK Software Today!

Free Trial

Key Elements to an Effective Virtual Meeting

Every professional athlete practices the basics. We may think we have the basics down, but it is always important to practice. Here are seven items to focus on as you consider the basics of an effective virtual meeting.

Plan Sponsors Focus on Retirement Readiness – But is it Enough?

Plan sponsors are finally focusing on the metrics that will help their employees better prepare for retirement. In Fidelity’s ninth edition of its Plan Sponsor Attitudes survey, the survey revealed that retirement readiness is now top of mind for plan sponsors.

Five Myths to Reconsider about Advising Federal Employees

Some retirement advisors are unaware of the benefits of serving federal employees, while others choose not to work in the federal market. By doing so, they are leaving tremendous opportunities untapped. In this article, I explore five myths that too often discourage advisors from working with federal employees.

Plan Advisors: Don’t Be a Commodity!

Advising plan sponsors and participants is a rewarding job but, in the changing qualified plan landscape, it can be increasingly difficult to win news plans. On one side, plan sponsors are feeling the heat from recent litigation focusing on fiduciary duties, fees, fund choices and other factors....

Calculating Federal Deposit and Redeposit Service

One of the purposes of The Retirement Analysis Kit (TRAK) and TRAK-Online software is to reduce the complexity of financial planning – a solution to help advisors with the many complex calculations and illustrations while producing results that clients can easily understand. Nowhere is this more helpful than working with pension plans, which bring their complications.

No, retirement planning is not like a slow cooker

Retirement planning is not like a slow cooker. Just drop in the contributions, set it and forget it, and at retirement, it will be ready? No, it doesn’t work that way. Retirement planning is more like preparing a gourmet French meal. It requires combining the right ingredients in the right way at...

Five Ways to Boost Participant Engagement

Much of the conversation about 401(k) participation and whether participants are adequately saving for retirement centers on the plan sponsor. Plan design and administration play a big part in plan success. However, there is still much that an individual plan advisor can do to help improve...