Since a 2006 law was passed, companies can now legally automatically enroll you in a retirement plan instead of waiting for you to sign up on your own. The idea behind the law was to force people to start saving for their retirement because the US government knows Social Security is going to go bust, traditional pensions are going the way of the dinosaur and most people can’t be trusted to save enough for retirement on their own.
Good law, right? Well, maybe not according to a recent Wall Street Journal article. The Employee Benefit Research Institute found that 40 percent of new employees at companies with auto enrollment plans are putting away less money every paycheck than if they were to have enrolled on their own.
Personally think this is an example of using data incorrectly. Let me explain…
The article looks at the savings rate of people who are auto-enrolled in 401k plans vs. people who enroll on their own. The auto-enrolled people save only 3 percent of their salary while the folks who sign up on their own save between 5 and 10 percent. The conclusion is that thousands of dollars are lost over the course of a lifetime because people are auto-enrolled.
Sorry, not the case in my book. I view those auto-enrolled folks who don’t change their contribution amounts as people who would have NEVER contributed at all. These are the folks who would have a 401k balance of NOTHING if they had not been auto-enrolled in the 401k plan.
Again, I just had to write you about this topic in case you came across it and formed an opinion based on the headline that auto-enrollment plans are bad – they’re not. What’s bad is when folks just stick with the low contribution rate and don’t adjust it upwards over time. The goal if you can’t contribute a lot right now is to start small and finish big (larger contributions).
Side Note: If you’re only contibuting 3 percent to your 401k or other retirement plan, do yourself a favor your future self will thank you for – double that number. I promise you won’t miss the cash in the short-term. If you do, you can always lower your contribution amount over time.
Photo via m kasahara
Fabio Marciano is an accomplished author and runs the popular blog Cubicle Millionaire. He is dedicated to radically changing people's lives first through their finances and their work. He frequently writes about a variety of topics, namely getting ahead at your full-time job, doing great work, losing weight and getting in shape, creating a second income, how to plan for the future and how to be more productive (to name a few topics). 
