The top financial regret for U.S. workers is having not set enough money aside for retirement, according to an American Century survey, and nine in ten respondents said that they wish they could go back in time and “tell their younger selves to save more.” Similarly, a plurality of U.S. adults in a Bankrate poll said that “not saving for retirement early enough” has been their biggest financial blunder. The frequency of reported remorse about a late start appears to increase significantly with age. Some of this is due to younger respondents believing they still have a lot of time left to boost their savings, but another factor is likely the growing use of automatic enrollment, which is ensuring that many working Americans start setting aside money for retirement at an earlier stage in life.
Indeed, employers can automatically deduct elective deferrals from an employee’s wages unless the worker makes an election not to contribute or to contribute a different amount, according to the Internal Revenue Service. Researchers have repeatedly shown that 401(k) participation is much higher under automatic enrollment, and based on revised EBRI estimates using the latest data from the U.S. Census Bureau, roughly six in ten full-time, full-year wage and salary workers in America (ages 21 to 64) are now participating in an employment-based retirement plan. Just-released Vanguard data similarly showed that the adoption of automatic enrollment has more than tripled since 2007, and a majority of contributing 401(k) participants have joined their plan under automatic enrollment. Auto-enrollment is effective because on average only around one in ten workers actually opt out of a plan after being “nudged” into participating. More generally, though, the sooner anyone can start saving for retirement with a 401(k) the better because the amount of money that can be amassed using these tax-advantaged vehicles is substantial.
For instance, in March we learned that the number of “401(k) millionaires” in this country has been rising for several years and is still near an all-time high despite 2020’s pandemic-related spike in stock market volatility. This is an encouraging trend since recent surveys suggest that a growing number of 401(k) participants finally recognize that they could need over $1 million in savings in order to achieve their ideal retirement. To some such a large retirement nest egg may seem out of reach but many affluent 401(k) participants have simply been making conservative yet consistent contributions for decades, therefore further highlighting the importance of an early start. Moreover, savers of all ages must understand that every contribution, no matter how seemingly small, can have a dramatic impact on their standard of living in retirement (see above).
Sources: American Century, Bankrate, EBRI, Vanguard, Fidelity Investment