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Is your retirement on autopilot?

By Barbara Whelehan ·
Friday, January 28, 2011
Posted: 2 pm ET

Are you confident you'll have enough money to get you through retirement? Chances are your employer doesn't think so.

Just three in 10 companies are confident that their workers are sufficiently prepared for retirement, according to a new survey by Aon Hewitt of 210 mid-to-large U.S. companies representing 6.2 million workers.

Companies have been revving up efforts to help workers with their retirement goals by offering automated savings programs in recent years. Witness what's on offer currently compared to what was available in 2006:

  • Fifty-seven percent of plans provide automatic enrollment, up from 24 percent.
  • Forty-seven percent automatically increase employee contributions annually, up from 17 percent.
  • Forty-nine percent offer automatic rebalancing, up from 27 percent.

Of those firms that do not offer these features, many plan to jump on the bandwagon this year. More than a third (36 percent) expect to add automatic enrollment in 2011; more than a quarter (26 percent) plan to add automatic escalation; and another third are considering automatic rebalancing.

This doesn't mean you should relinquish control of your retirement plan since it appears that someone else is covering for you. In this month's issue of Plansponsor Magazine, hot off the press, the cover story, "Misbehavioral Finance: Why Plan Sponsors Fail," analyzes the pitfalls that come with investment committee decision making on behalf of American workers.

When decisions are made by a group, any number of behavioral problems can interfere with good results. "Confirmation bias" happens when people look for information that confirms what they already believe. "Shared information bias" occurs when the group relies too heavily on what they already know from news sources, for example. "Group polarization" is the result of a group's tendency to take a more extreme course of action than what individuals would do if making a decision on their own.

Groupthink not good for you

In other words, too often groupthink takes over, resulting in ill consequences to workers. For example, plan sponsors -- meaning employers -- frequently roll out too-conservative auto-enrollment features, setting deferral rates at 2 percent or 3 percent when they should be much higher. Most retirement experts say workers should contribute from 10 percent to 15 percent of their earnings toward retirement.

Just as employers have little faith in their workers' retirement planning efforts, employees should maintain a healthy skepticism in their company's retirement plan features. That means taking steps to manually override any automated features. Go for 10 percent at a minimum, call it self-tithing if you like.

Retirement plan contribution limits for 401(k), 403(b) and 457 plans are $16,500 this year -- or $22,000 if you're 50 or older. Figure out how much you're contributing now on an annual basis, and try to move the needle closer to the limit. Chances are you won't regret this move, but you will regret it if you don't.

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