How do I start saving for retirement? Auto-enrollment in your 401(k) may be the key

Inflation and fears of the economy didn’t stop some retirement savers from contributing to their plans, a new Vanguard report found. 

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Almost a quarter of participants put at least 10% of their income away in retirement accounts, while the average rate was a record high of 7.4%, the financial institution found of its nearly 5 million retirement plan participants. With employer matches — which 98% of participants had access to — the average contribution rate was 11.3%. 

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One major driver of these continued contributions: employer perks such as automatic enrollment, Vanguard said. More than half of plans have auto-enrollment, which automatically places workers into the workplace retirement plan. That figure is even higher (76%) among plans with at least 1,000 participants, the firm found. 

For almost six in 10 plans, the default deferral rate begins at 4% or higher, and almost all go into a target-date fund. Two-thirds of plans also offered an automatic deferral rate increase of at least 1%. 

Having both a 401(k) and an IRA can boost your annual retirement contributions by 30%. What savers should know about each type of account. Photo: Getty Images

Financial advisers typically suggest saving somewhere between 10% and 15% of earnings, and these automatic features generally stayed in line with that. Four in 10 plans with automatic enrollment and increased deferral rates had a cap at 10%, and another one in three had a cap between 11% and 25%. There were 6% of plans that said they had no cap, but Vanguard’s report said it was “likely an error.” 

Billions of dollars in retirement savings can be attributed to auto-enrollment, some experts said. The benefit allows workers to forgo the extra paperwork when starting a new job and start saving as soon as possible without much thought. Even Congress has pushed for more plans to incorporate auto-enrollment into workplace plans, by putting a provision about it in Secure 2.0, retirement-focused legislation passed in December. 

Advice and adviser services through workplace plans are other benefits helping workers stick to their retirement savings. A majority of plans from companies with at least 5,000 employees offered advice as part of their retirement benefits, and in total, 41% of plans had this perk. Advice came in the form of help from a financial planner or a robo adviser.

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