Retirement Made Easier: Remove Temptation

Recently the Obama administration announced plans to make saving for retirement easier. Their underlying principle: removing temptation.

But there’s no need to wait for the new rules to take effect. You can make the key moves on your own to keep your retirement plans on track.

The trick to any long-term investment strategy is to get started, to keep at it and to make minor adjustments as needed (rather than big changes to catch up).

But excuses get in the way.

Signing up for a 401(k) doesn’t seem like the top priority when you start a new job. A raise looks like a chance to spend more rather than to boost your retirement savings. And an income tax return looks like a windfall for funding your next vacation.

So the administration is making it easier to avoid these pitfalls.

One step is to make it simpler and faster for employers to set up automatic enrollment for 401(k)s and simple IRAs, another form of workplace retirement investment.

Instead of waiting for new employees to sign up, the employer will automatically enroll them. (The Administration is also asking Congress to allow companies that don’t offer 401(k)s to automatically enroll employees in IRAs.)

While employees can opt out, experience at companies that currently use automatic 401(k) enrollment shows they generally don’t. Automatic enrollment is credited with increasing employee participation rates to more than 90%, from 70%.

The administration will also make it easier for employers to automatically increase an employee’s 401(k) contributions over time.

Many employees, whether they enroll on their own or are signed up automatically, quickly move 401(k) or IRAs to the backburner, rarely revisiting their accounts to keep contribution levels up to date.

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