By Alan Gross
If retirement plan success is accumulating enough money to fund retirement, then you could say the single most important step in the entire adventure is the first one: enrollment.
As philosopher Laozi1 said, “A journey of a thousand miles begins with a single step,” reminding us that “even the longest and most difficult ventures have a starting point.”
Thanks to auto-enrollment, a significant number of people begin the decades-long venture of investing for retirement without a thought of their goal or their future income needs. And while auto-enrollment has proven to be extremely effective in getting more people into a habit of saving, it hasn’t been as effective in getting people to save enough to be successful. That’s partially attributable to initial contribution rates that are too low and that lag behind the needed savings rate even with annual increases.
Re-enroll all plan participants to create clarity and update expectations.
So we have a disconnect: People are saving for retirement, but they don’t know how much they need to save in order to enjoy a comfortable future. Without knowing their goal, many will inevitably come up short, but won’t discover this until they have squandered too many years saving at deficient rates. You cannot blame them. If they don’t know their goal, how can they know how much to save, or at what desired rate?
The answer lies in a simple, but powerful two-part solution:
- Introduce a personalized, goal-based planning experience that makes it clear how much each investor needs to save, and at what desired rate, to meet their retirement funding goal. And,
- Re-enroll all plan participants through this experience to create clarity and update expectations. This is an opportunity to propose adjusting investment allocations to align to investor goals unless they opt out. Re-enrollment also creates an opportunity to encourage employees to save more – now that they know their goal – and to maximize company match opportunities.
The most important step in the decades-long venture of investing for retirement is the act of enrollment. The second most important step is re-enrollment.