This One Trick Is Helping Americans Save More for Retirement

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Source: Thinkstock

Source: Thinkstock

Incentives are a powerful force in economics. They motivate market participants to perform actions they otherwise might not take. However, sometimes incentives alone are not enough to produce significant changes. Saving for retirement continues to be a major obstacle for millions of Americans, but one relatively new tactic is helping Americans save for the future.

Where tax incentives and financial planning tools fail, auto-enrollment plans are succeeding. More Americans are saving for retirement courtesy of 401k plans that automatically enroll employees. According to a recent analysis by Vanguard, more than half of all contributing participants in 2013 were in plans with auto enrollment, while 62 percent of employees participating for the first time last year were in plans that had adopted automatic enrollment.

Jean Young, lead author of the Vanguard report, explains that, “401k and other defined contribution plans have enabled millions of American workers to accumulate savings for retirement. Automatic programs have played a key role in this success.” Overall, 34 percent of Vanguard plans adopted auto enrollment by the end of 2013, up from 24 percent five years earlier.

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