A lot of things go with the flow.
Fish, your friend who's overly accommodating, and plastic bags in the wind.
There are definitely times that call for going with the flow and times that DO NOT.
One such situation: your retirement strategy hinging on an auto-enrolled 401k plan.
Today we're going to explore this trending topic and why I think (evidence shows) it's a terrible option to automatically-enroll in your 401(k) plan.
It Started Out Great
In fairness, I can understand how the idea was conceived with the best of intentions.
Before we had 401ks, we had pensions. In forced pension funds, the complexities and responsibilities of saving for retirement were taken off of the worker's shoulders. However, we know that the pension system was majorly flawed. Hello, 401k!
Automatic 401k enrollment for employees feels like the same principle-- money being taken from your paycheck and funneled into an account before you can get your hands on it. It forces Americans to save (because history shows that when left to our own devices, we’re terrible at saving.)
From the outside, it looks like a pretty solid plan-- take one chore off of their plate and force people to save money. Sounds like a win-win, right? Not exactly...
We commonly see two actions from individuals with auto-enrolled 401ks:
- Employees are likelier to cash out when they leave the company.
- A higher percentage of employees take loans from their plans.
In both scenarios, the 401k essentially acted as a really, really expensive emergency fund because employees get slapped with pricey early withdrawal penalties and hit with income taxes.
Automatic 401k enrollment is too passive and isn’t serving anyone.
If it’s not your idea or your choice, it’s probably not going to stick. (And don’t for a moment think you have a weak constitution, it means that you’re human.)
In my personal life, if I’m not the arbiter and the one making an active choice, that passive action doesn’t carry much of a significance for me.
The same goes for how you decide to plan for your future.
Are you more motivated to take control of your financial health based on a general plan someone else coordinated OR when you're in the driver's seat and used your own agency to deliberately create a course of action?
here's what we desire for you
It's for you to decide if you want to live on less now to live out your dreams later or spend the money now and hope it all works out later down the road. If you're currently standing in latter, give us a call!
We want to help you build a strong plan for your future.