A Downside to Auto-Enrollment

When it’s time to retire, will you have enough in savings?  If you have made and are making wise personal investment decisions, the answer is likely yes.  But, if you were automatically enrolled into your employer’s retirement plan and are letting that employer make your investment decisions for you, the answer could be no.

The percentage of employers offering automatic enrollment is growing. The Government Accountability Office (GAO) that the percentage of plans with automatic enrollment

policies increased from about 1 percent in 2004 to more th

an 16 percent in 2009.  

But there is a downside to automatic enrollment retirement plans  –  they typically have low default contribution rates and unaggressive investment strategies.   So, although auto-enrollment encourages individuals to begin saving for retirement, it may give them the false impression that sticking with the status quo will yield financial security.

Despite the caveat, auto-enrollment plans likely shift many people into saving what they otherwise would not have been saving on their own.   If you are currently participating in a 401(k) plan with the default contribution option, you might want to consider making a few investment decisions of your own.

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