Automation Drives Retirement Savings to New Heights
Financial advisors may want to pay closer attention to automation in retirement savings accounts. Auto-escalation and auto-enrollment played major roles in how Fidelity retirement savings accounts reached new highs this year, Bloomberg writes.
Fidelity’s average 401(k) plan account reached a record $95,500 in the first quarter of 2017, a 9% jump on the year prior, Bloomberg writes.
While 70% of that rise is attributable to investment performance, 30% came from combined contributions from employees and employers, according to Fidelity. In addition, a record 27% of employees in Fidelity plans bumped up the percentage of their salary they contribute to retirement savings, Bloomberg writes.
This has much to do with auto-escalation, the practice of raising employees’ contribution rates by 1% per year until a predetermined cap, according to the news service. In the first quarter, a record 16.1% of Fidelity’s plans made participation in auto-escalation automatic upon enrollment, compared to 14.4% last year, Bloomberg writes.
Among the 27% of employees who raised their contribution, 50% did so in such auto-escalation accounts, Jeanne Thompson, a senior vice president at Fidelity, tells the news service. And for workers under 30, automated increases accounted for a whopping 68% of the rise in savings rates, according to Fidelity’s analysis.
Auto-enrollment also contributes to higher rates of savings, according to Thompson, but only 40% of employers do it, according to the Society of Human Resource Management data cited by Bloomberg.