There was recently an article in the WSJ about the state of Financial Literacy and the amount people have saved for retirement. The article talks about the need to educate people on financial planning but, in the end, it’s not all about just education. It’s also about behavior.
There was an interesting survey done recently about 401(k) plans and people’s savings and investment habits. A group of people went to a retirement planning seminar that could provide them with information to help them make better retirement savings choices from:
- Asset Allocation and Fund choices
- Savings Rate Choices
As they left the seminar, they reported fantastic intentions:
- 100% of those who were not currently enrolled said that they were going to enroll in their 401k plan.
- Of those already enrolled in the plan, 28% said that they were going to increase their savings rate.
They followed up with these same people a few months later and found that:
- Of the 100% of people that said they were going to sign up for their plan, 14% actually signed up.
- Of the 28% that were going to increase their savings rate, 8% actually did increase their savings.
Good intentions along with education did not result in improved behavior.
Why didn’t this work? People by nature are passive. Even though they know what they should do, they don’t get around to doing it. Here’s the good news – it’s easy to improve this behavior. How?
Auto Enrollment in 401(k) Plans
The results have been stunning. In plans that have auto enrollment, 80% to 90% are now participating in their plans. The key to auto enrollment is to increase contributions over time and take advantage of the magic of compounding. Next time you get that raise, make sure you put a portion of it into your 401(k) by adjusting your contribution. Or ask your employee if this is a feature available in the plan - to auto increase. If you’re an employer, urge your employees to sign up for the company retirement plan and consider Auto Enrollment features for your employees. It’s about financial education and helping people with behavior. Listen to my full podcast below:
If you’d like help reviewing your investment strategies and saving for retirement, please contact Casey Boland via email [email protected]or 513-598-5120.
Date Posted: 11/07/2016 Advice provided in this article is meant for educational purposes only and financial education is important to us. Before making decisions regarding your personal financial situation, please consult an advisor or conduct your own due diligence. If you would like to discuss your Retirement Income Plan with an HCM Wealth Advisor, please give us a call – 513-598-5120. Located in Cincinnati, Ohio, we serve clients in 28 states, and we’d love to help.