401(k)s Have $70 Billion Problem

There are discussions about making retirement plan deductions mandatory. I am not in favor of this, we should be more accountable for our own financial future. I am in favor of auto enrollment and auto escalation. I would also recommend that the employee be automatically put into an age appropraie portfolio. This makes the plan more like a pension plan. The employee could then decide to opt out of the plan or change the risk level of their portfolio. The end result, I believe, would be more people properly saving for retirement.

English: Employees Retirement System of Texas
English: Employees Retirement System of Texas (Photo credit: Wikipedia)

“This research shows that employers are not getting the ROI that they may think they are from their retirement investments,” HelloWallet founder and CEO Matt Fellowes said in a statement. “Investing in retirement savings is essential for all Americans, but this study demonstrates that a large share of U.S. workers lack the basic financial skills needed to actually benefit from those savings, and it’s costing both them and their employer dearly.”The research also finds that only a small percentage of employees (8%) are withdrawing funds because they have lost their jobs. Instead, 75% of those who have made early withdrawals have done so because they lack basic money management skills and need to meet basic money management challenges, such as emergencies, credit card payments and health care. In many cases, better planning and guidance would put them on a track to avoid costly mistakes, take advantage of the tax incentives and accumulate the savings needed for retirement.

American companies now spend the aforementioned $118 billion annually on retirement contributions with the expectation that employees will take maximum advantage of these programs to improve their financial well-being. The new research suggests that employers’ massive investment is not always delivering the intended results.

There is evidence that the American workers needs more education on financial planning. Americans need to realize that they and they alone are accountable for their own financial future. Reliance on the government will only result in disappointment.

Please comment or call to discuss how this affects you and your employees.

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