What if you could make a single decision in your life that would significantly increase the chances you’d end up with the retirement savings you need for financial security in your later years?
It turns out that may actually be possible. Here’s why.
Could this one factor be the key to your financial security in the future?
According to a study conducted by Fidelity, a whopping 91% of employees whose companies auto-enroll them in their workplace 401(k) do not end up opting out. Instead, they continue making the contributions they were signed up for automatically. They have this money withdrawn from their paychecks and put directly into the tax-advantaged retirement account their employer offers. That’s an impressive 401(k) participation rate, and much higher than among employees who have to opt in.
Fidelity’s results make one thing clear: People tend to stick with the status quo when it comes to their retirement savings. Those who are signed up for a 401(k) by default often won’t go to the trouble of canceling their contributions, even though investing for the future does mean smaller paychecks now.
Now, you don’t have the option to choose whether your employer automatically enrolls you in their 401(k) or not — although, of course, if you’re looking for a new job, you can ask companies if they offer this workplace benefit. But even if you’re happy with your current position, or a business you go to work for doesn’t offer automatic 401(k) enrollment, you can still benefit from this status quo bias.
See, all you have to do is decide how large a contribution you want to make to your retirement investment account and set up those contributions to happen automatically. You can do this with a workplace 401(k) if you’re offered one, or you can open a traditional or a Roth IRA at a brokerage account of your choosing and arrange with the bank or broker to have money automatically put into your account on payday.
Once you’ve set up the automatic contributions to your retirement nest egg, chances are good that you’re going to be like the majority of employees in Fidelity’s study and just leave those contributions alone. It’s unlikely you’ll want to go through the effort of reducing or ending the investments you’re making in your future — especially since in filling out the paperwork to do so, you’d have time to think seriously about the financial consequences.
The sooner you start the process of automating your retirement account contributions, the sooner you can put the power of this approach to work for you. So sit down, figure out your retirement savings goal and how much you must invest monthly to hit it, and set up automatic contributions ASAP.
Then you can just sit back and watch your money grow effortlessly, and you won’t have to worry very much about the retirement planning process anymore — beyond choosing a few safe investments so you can put your growing nest egg to work for you.
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