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New automatic 401(k) enrollment rule can help workers reach retirement goals


Retirement finances are looking better for many older Americans, according to a recent investment company survey. However, they still haven't stashed the amount they say they expect to need to turn their post-work time into truly golden years.

The average amount U.S. adults have saved for retirement reached $89,300, according to Northwestern Mutual's 2023 Planning & Progress Study. That's a 3 percent increase from 2022's average retirement savings level of $86,869.

Survey participants, however, said they will need much, much more to retire comfortably.

The amount to live like they want is $1.27 million. That was up from the $1.25 million comfortable retirement nest egg noted in the company's survey last year.

Perspective changes goals: Age and current financial status obviously affected respondents' responses.

People in their 50s told Northwestern Mutual they'd need more than $1.5 million for a contented retirement.









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High-net-worth individuals — those described by the investment firm as having more than $1 million in investable assets — believe they'll need $3 million for a contented retirement.

As for the possibility of reaching their goals, Gen Z is the most confident about being financially prepared for retirement when the time comes.

Elsewhere on the retirement readiness scale, more than half of Gen X say they won't be ready, and nearly half of Millennials and yet-to-retire Baby Boomers say the same.

Automatic workplace savings could help: One thing that could help all ages improve, and reach, their retirement goals is increased participation in workplace defined contribution plans, most commonly known as 401(k)s.

That's happening, says another investment company survey, thanks in large part to automatic employee enrollment.

Automatic enrollment, where workers are enrolled in their workplace retirement plan unless they opt out, removes an entry barrier for retirement savers, according to Vanguard's annual How America Saves report.

Nearly 58 percent of plans, and 76 percent of plans with at least 1,000 participants, have adopted this design, the report said.

That could help explain why participation rates in company 401(k) plans managed by Vanguard have reached an all-time high of 83 percent.

SECURE 2.0 mandates auto enrollment: The automatic enrollment feature has been a workplace retirement plan option for several years. In 2025, it will be a requirement.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted Dec. 29, 2022, as part of a year-end appropriations bill, makes automatic enrollment a requirement rather than an option for new plans.

Companies that launch a new 401(k) retirement in 2025 or later must automatically enroll eligible employees in the plan, starting at a 3 percent of earnings contribution level. The workers' contribution amount would automatically increase by one percentage point annually, until they reach contributions of at least 10 percent, but not more than 15 percent of their salaries.

This change by SECURE 2.0, as the new law is known, won't affect existing workplace 401(k) plans. Also, businesses with 10 or fewer workers, new businesses that have been operating for less than three years, and church and governmental plans also exempt from the auto-enrollment rule.

Don't freak out, future employees. Even if you do go to work in a couple of years for an employer who must auto enroll workers in its retirement plan, you have the final say.

Workers still have the option to opt out of 401(k) enrollment.

But you shouldn't. If you ever hope to reach the $1.27 million retirement savings goal, or whatever comfort-level amount you think you'll need, you need to be saving as much as you can now.

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