Though the “auto” plan features of the Pension Protection Act of 2006 were a good start, we need to go further. Automatic enrollment is a great way to get more participants into their 401(k) plan, but deferring them at 3% into a one-size-fits-all target-date fundfilled with an overwhelming percentage of active equities is not the solution that will get participants to a successful retirement.With obvious exceptions, most should start at 10%, increasing with each raise. Some people cannot afford it, and some do not need it, but double-digit deferral applies to the other 90%. Worst case is that participants will be saving more money than they need.
Just as the U.S. government is being forced to make hard choices about the national budget after a decade of overspending, participants have to make tough decisions about where they live, what they drive and how much discretionary income they spend.
The formula to a successful retirement is simple save at least 10% of your earnings in a qualified plan, use a globally diversified portfolio and control your spending.
Please comment or call to discuss how your plan is doing.
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