6% Is The New 3% When It Comes To 401(k) Auto Enrollments - The Average Joe


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    6% Is The New 3% When It Comes To 401(k) Auto Enrollments

    Rhea Lobo

    July 1, 2024

    You might reach your retirement goals sooner — and you can thank the law for that. In 2022, the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 was passed, mandating most companies to automatically enroll eligible employees into company retirement plans, starting at a contribution rate of at least 3% by 2025. Surprisingly, nearly one-third of companies already exceed this requirement by starting contributions at 6% or higher.

    • In 2023, participants in auto-enrollment plans saved 12.7% of their annual income, compared to an average of 10.3% in plans requiring manual sign-ups.
    • Vanguard found that 60% of companies now automatically enroll new hires, boosting 401(k) participation rates to 82% from 66% in 2007.

    Retirement matchmaker: Many plans raise contributions by 1% annually until reaching ~10% of an employee’s pay. This approach ensures employees maximize matching contributions, aiming for a total savings rate of up to 15% of annual income. However, studies have found that higher default contributions may lead some workers to take on debt to meet their financial needs.

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