Automatic enrollment and automatic escalation can drive the solution to the retirement readiness problem, Putnam’s Bob Reynolds said in a recent interview with Forbes. Reynolds cited a study his firm and Brightwork Partners did in 2012 that found that automatic enrollment significantly increases the percentage of their income they will be able to replace in retirement.
The study found that those participating in an employer-provided retirement plan were on the road to replace 80% of their income in retirement; those who are automatically enrolled, 85%; and those whose contributions to their retirement accounts are automatically escalated, 98%. Conversely, those who do not participate in a plan could expect to replace 42% of their income in retirement.
Reynolds also argued that income replacement in retirement is further enhanced if it is used in conjunction with automatic enrollment and automatic escalation. He told Forbes that participants who put 10% or more of their paychecks into their retirement accounts will be on the way to replacing 113% of their income.
Reynolds indicated that there is more ground to be covered, however. He noted that 5% of those who do not participate in employer-provided plans save for retirement, and 60% of those with access to plans do so.
