It’s not news that Americans
aren’t saving enough. The typical baby boomer, whose generation is just
starting to retire, has a median of $147,000 in all of his retirement accounts,
according to the Transamerica Center for Retirement Studies. And 1 in 3 private
sector workers don’t even have a retirement plan through their job.
But the new year brings with it
some good news: If people do have a 401(k) plan through their employer, there’s
data showing them choosing to set aside more for their later years. On average,
workers in 2015 put 6.8 percent of their salaries into 401(k) and
profit-sharing plans, according to a recent survey of more than 600 plans.
That’s up from 6.2 percent in 2010, the Plan Sponsor Council of America found.
An increase in retirement savings
of 0.6 percentage points might not sound like much, but it represents a 10
percent rise in the amount flowing into those plans over just five years, or
billions of dollars. About $7 trillion is already invested in 401(k) and other
defined contribution plans, according to the Investment Company Institute.
If Americans keep inching up
their contribution rate, they could end up saving trillions of dollars more.
Workers in these plans are even starting to meet the savings recommendations of
retirement experts, who suggest setting aside 10 percent to 15 percent of your
salary, including any employer contribution, over a career.
While workers are saving more,
companies have held their financial contributions steady—at least over the past
few years. Employers pitched in 4.7 percent of payroll in 2015, the same as in
2013 and 2014. Even so, it’s still more than a point above their contribution
rates in the aftermath of the Great Recession.
One reason workers participating
in these plans are probably saving more: They’re being signed up
automatically—no extra paperwork required. Almost 58 percent of plans surveyed
make their sign-up process automatic, requiring employees to take action only
if they don’t want to save.
Automatic enrollment can make a
big difference. In such plans, 89 percent of workers are making contributions,
the survey finds, while 75 percent make 401(k) contributions under plans
without auto-enrollment. Auto-enrolled employees save more, 7.2 percent of
their salaries vs. 6.3 percent for those who weren’t auto-enrolled.
Companies are also automatically
hiking worker contribution rates over time, a feature called “auto-escalation”
that’s still far less common than auto-enrollment. Less than a quarter of plans
auto-escalate all participants, while 16 percent boost contributions only for
workers who are deemed to be not saving enough.
A key appeal of automatic 401(k)
plans is that they don’t require participating workers to be investing experts.
Unless employees choose otherwise, their money is automatically put in a
recommended investment. And, at more and more 401(k) and profit-sharing plans,
this takes the form of a target-date fund, a diversified mix of investments
chosen based on a participant’s age or years until retirement. Two-thirds of
plans offer target-date funds, the survey found, double the number in 2006. The
share of workers’ assets in target-date funds is up fivefold as a result.
A final piece of good news for
workers is that they’re keeping more of every dollar they earn in a 401(k)
account. Fees on 401(k) plans are falling, according to a recent analysis
released by BrightScope and the Investment Company Institute. The total cost of
running a 401(k) plan is down 17 percent since 2009, to 0.39 percent of plan
assets in 2014. The cost of the mutual funds inside 401(k)s has dropped even
faster, by 28 percent to an annual expense ratio of 0.53 percent in 2015.
here for the original article from Bloomberg.