https://www.morningstar.com/news/market ... ed-instead
By Jessica Hall
Auto-escalation, auto-enrollment and other helpful features ran into a surprising obstacle
We may be our own worst enemy when it comes to retirement savings.
Innovations such as auto-enrollment, when an employer automatically sets a worker up in the company's retirement plan, and auto-escalation of savings, which increases the contribution to a worker's retirement plan automatically, were intended to boost overall retirement savings. But new research found that these features help less than previously thought, mainly because people end up sabotaging their own retirement success.
"We're not saying auto features are bad or useless. These policies we think are a good idea, but they're just not as effective as originally thought," said Yale School of Management professor of finance James Choi.
"In the real world, looking at how people behave - people leave jobs, cash out their 401(k)s or opt out of savings rates - it's different once human behavior plays a role," Choi said.
In the new research, "Smaller than We Thought? The Effect of Automatic Savings Policies," Choi and his colleagues studied nine 401(k) plans and found that auto enrollment and default auto-escalation are actually less effective in increasing retirement savings than earlier research suggested.
[Post trimmed by admin LadyGeek. "Please limit quotations and reproductions of external materials to the minimum necessary to make your point." See: Quoting outside material]
By Jessica Hall
Auto-escalation, auto-enrollment and other helpful features ran into a surprising obstacle
We may be our own worst enemy when it comes to retirement savings.
Innovations such as auto-enrollment, when an employer automatically sets a worker up in the company's retirement plan, and auto-escalation of savings, which increases the contribution to a worker's retirement plan automatically, were intended to boost overall retirement savings. But new research found that these features help less than previously thought, mainly because people end up sabotaging their own retirement success.
"We're not saying auto features are bad or useless. These policies we think are a good idea, but they're just not as effective as originally thought," said Yale School of Management professor of finance James Choi.
"In the real world, looking at how people behave - people leave jobs, cash out their 401(k)s or opt out of savings rates - it's different once human behavior plays a role," Choi said.
In the new research, "Smaller than We Thought? The Effect of Automatic Savings Policies," Choi and his colleagues studied nine 401(k) plans and found that auto enrollment and default auto-escalation are actually less effective in increasing retirement savings than earlier research suggested.
[Post trimmed by admin LadyGeek. "Please limit quotations and reproductions of external materials to the minimum necessary to make your point." See: Quoting outside material]
Statistics: Posted by Schooly D — Tue Sep 17, 2024 12:03 pm — Replies 10 — Views 681