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

The Bucket Strategy – Who Wants It and How to Win Their Business

The bucket strategy is growing in popularity as Americans seek ways to ensure their hard-earned money will last throughout the entirety of their retirement years. The bucket strategy explores how advisors should approach the strategy to generate more business.

Key Elements to an Effective Virtual Meeting – Part II

Engagement with Americans in retirement readiness has never been easy. And COVID-19 restrictions have made many meetings virtual, which makes engagement even harder. That’s why it’s essential to follow the fundamental principles of engagement.

Helping Your Clients Not Walk Away From Their Money

A few years ago, my wife went to a garage sale and bought a box of old books for $25. She came home as excited as I had ever seen her. Why? One of the books was a 1831 edition of The Federalist Papers. We searched online and were thrilled to see an estimated value of $500. Those poor sellers had...

The Cost of Leaving a Pension Early

The most powerful force in the Universe is compound interest. - Albert Einstein  In 1984, the Portland Trailblazers selected Sam Bowie over Michael Jordan as their draft pick—and as the saying goes, the rest is history. Although Sam Bowie was a terrific 7’3” center, his name has long been...

Knowing the Why?

For better or for worse, knowing why something is a certain way can make a world of difference in how we approach it. As advisors, understanding why can help us address our clients’ questions.

Curse of Knowledge

Curse of Knowledge Three simple words can help us understand the problems many advisors face as they attempt to engage their clients toward retirement success: Curse of Knowledge.[1] Advisors know so much about their own world that they forget the context of those they seek their help and end up...

New Budget Proposes Cuts to Federal Retirement Plans

To the plethora of polarizing issues coming out of Washington, why not add federal employee retirement benefits to the mix! It is no secret that federal employees enjoy a job security and retirement package that is unrivaled in the private sector. Some see these benefits as a just reward for those...