Retirement Investing Is Moving to a Do-It-For-Me Model

NEW YORK (MainStreet) -- Employer-sponsored retirement accounts began as do-it-yourself savings plans. You decide if you want to save, and if so, how much (and how exactly) to invest. Unfortunately, many retirement plan participants were lost in the process. Rather than figuring it out, they just sat it out.

Faced with a workforce financially unprepared for retirement, employers are beginning to offer do-it-for-me options for their employees. Plan sponsors seem to be saying, “If you won’t do it, we’ll sign you up, invest your money and boost your savings rate along the way.”

This act of practically forcing Americans to save for retirement is a good idea, according to Bernie Wolfe, former NHL player and founder of wealth management firm Bernard R. Wolfe & Associates based in Chevy Chase, Md.

"I had an opportunity to contribute extra money into my retirement plan, but I would have had to fill out some forms," Wolfe tells TheStreet. "I was in my 20s and thought retirement was several lifetimes away. So I didn't add anything extra to my plan -- and I regret it today.”

Early participation is on the rise. More than half (60%) of newly-hired employees participating in Vanguard 401(k) plans last year were automatically enrolled. Almost half (45%) of participants were solely invested in an automatic investment program – such as a target-date fund -- compared with just 9% at the end of 2005. And seven-in-ten auto-enrollment plans have also instituted automatic annual deferral-rate increases, according to a new Vanguard report.

"The first step in retirement savings is participation,” Jean Young, a senior research analyst with Vanguard said in a statement. “Over the past decade, we’ve seen a meaningful jump in total participation rates. Three-quarters of eligible workers now participate in their employer’s plan, up from two-thirds ten years ago, underscoring the impact of autopilot plan designs.”

“These professionally managed investment options have the potential to reshape retirement savings outcomes for these participants,” added Martha King, managing director of the Vanguard Institutional Investor Group. “They signal a shift in responsibility for investment decision-making away from the participant and back to employer-selected investment and advice programs.”

As a result, for the five-year period from 2009 to 2014, average Vanguard plan balances rose by 28% -- while total returns averaged 9.9% per year.

But even with all of these “we’ll do what’s best for you” efforts, Americans are still under-saving. Because default deferral rates are often set at a low 3% or less -- and participants aren’t ratcheting up their contributions voluntarily -- retirement savings are still lagging projected future needs. For example, Vanguard recommends a target savings rate of 12% to 15%, including the employer match.

But Wolfe believes that target savings rate can intimidate investors.

"That freaks a lot of people out," Wolfe says. "What I would say is, if your employer is matching the first 3%, at least put 3% away and get the free money that your employer is offering. If it's 4% that they're matching, at least do that."

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