Vanguard’s 2015 “How America Saves” report found 36% of plan sponsors automatically enroll participants in the company 401(k) plan, and most of those also increase contributions automatically. A report from New York Life released Monday might encourage the holdouts to reconsider why they haven’t offered automatic tools to their workers.
When contributions to financial accounts like 401(k)s are made automatically, investors are more likely to save in the first place, and feel confident about their ability to meet their goals, New York Life found.
The firm surveyed pre-retirees between the ages of 50 and 62 with household income of at least $80,000 about automatic deposits made into various types of accounts and found 64% say those automatic tools give them more confidence about their financial goals.
Respondents added that it’s very hard to save additional retirement funds outside of those accounts, and 45% would like more automatic tools.
Pre-retirees with children at home found it especially challenging to save additional funds. Fifty-eight percent said they struggled to save more than what their automatic deduction took from their paycheck, compared with 46% of all respondents.
Of the respondents who use automatic savings tools to fund a retirement account, 93% said they were confident it would help them reach their financial goals. Those who use automatic tools for other savings goals were slightly less confident.
Over 80% of respondents who use automatic savings tools to fund a college savings plans expressed confidence in the plan. Seventy-nine percent said they were confident that automated tools could make it easier to pay off their mortgage.
“These savings vehicles often fly under the radar, but are kind of a big deal. The ease and recurring nature of these savings methods make them highly effective tools for helping clients to achieve their financial goals,” Chris Blunt, president of New York Life’s Investments Group, said in a statement.
He added, “I often ask clients to consider this question: Will you at 70 like the financial decisions you made at 40? While it is hard to know exactly, this survey gives us part of the answer. Be especially mindful of the value of automatic savings vehicles; your future self will be happy you did.”
The survey also asked respondents when the best time to start saving is. Respondents reported beginning a serious savings plan at an average age of 34, but said they wished they had started about eight years earlier at 26.
“This is a wake-up call to younger generations, Gen X, Gen Y and even Gen Z,” Blunt said. “Pre-retirees sit in an important vantage point – they are in a position to share what has worked well for them as they inch toward retirement. These 50- and early 60-year-olds wish they had started a serious savings plan in their 20s and finding ways to put savings on autopilot is the key to that plan. There is still time for earlier generations to react to these two pieces of advice.”
A BMO Harris report released last week came to a similar conclusion. The report, which surveyed over 3,000 American adults, found the average age to begin saving was 28. Ninety-three percent of respondents surveyed by BMO urged younger people to start saving in a 401(k) or IRA as soon as possible.
That report found that even though three-quarters of respondents are actively saving for retirement, 57% don’t know how much they’ll need and 44% don’t know when they’ll retire.
“It’s encouraging to see that Americans are proactively saving for retirement,” Mike Miroballi, president of BMO Harris Financial Advisors, said in a statement. “However, it’s also important to give some thought to how you want to spend your retirement to determine exactly how much you’ll need to fund your desired lifestyle.”
— Check out Homemakers at Risk in Retirement on ThinkAdvisor.