Revising Retirement through Automation

Optimizing the retirement life of each employee should be a high priority when considering the factors that contribute to their satisfaction and loyalty. However, the many choices for both employee and employer make this a daunting task. Automating your retirement, as I discuss in my recent book, “The Brighter Future 401(k),” can be done through the following five features, and may be one of the keys to streamlining what can be a confusing and stressful process:

1 Automatic Enrollment

2 Automatic Qualified Default
Investment Alternative

3 Automatic Escalation

4 Automatic Re-Enrollment

5 The Stretch Match

Often, companies do not take advantage of these convenient features because they may not feel comfortable with them or are worried about how employees might feel about money being automatically deducted from their paycheck. However, a look at the common issues that arise when choosing a retirement plan and their consequences reveals that the long-term benefits of these automatic features are often advantageous enough to counter these concerns.

Implementing an automatic plan to guide employees towards retirement success may help to alleviate some of the confusion and stress that comes alongside the many choices for the 86 million employees utilizing a 401(k). When presented with 30 or more options, as is often the case with these plans, many employees can feel overwhelmed and uninformed, ultimately making choices that may negatively impact their years of retirement.

Often, when given their 401(k) statements, employees will fixate on fund performance as the foundation for their decisions, usually picking the funds that have had the highest returns. The biggest problem with this is these are based on past performance due to previous trends and may not align with current ones. This can lead to the participant buying too high, not taking into account the fluctuating nature of these trends, which can change quickly.

Employees may also make the mistake of emotionally-charged investing, in which their financial choices suddenly are at the mercy of their feelings. Taking those emotions into account when making investment choices is widely regarded as a mistake. Financial decisions that will affect you not only in the present but also in the long term should be guided by logic and careful considerations of facts, not unreliable emotions.

Not only can automatic retirement features alleviate the confusion and common errors of employees, they can make the process much easier on the employer as well. Making sure employees are equipped with the tools necessary to save and make wise financial and retirement decisions is crucial, but it can be difficult to be sure of this. Automating retirement may relieve some of the worry and provide some peace of mind that both employer and employee are staying one step ahead when it comes to financial planning, rather than realizing financial mistakes before it is too late.

Taking the time to learn more about each feature and which of these features is ideal for each employer and their employees can mean making retirement decisions easier and more efficient. Our book  “The Brighter Future 401(k),” can help you look up a variety of studies and white papers from various sources that describe the positive benefits of Auto5 features, equipping you with the knowledge to make an informed decision.


Robert DeVries is a WealthCoach and Retirement Plan Specialist at FirstWave Financial. He recently earned his CRPS® designation and is now a Chartered Retirement Plans Specialist.