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Heading for Retirement on Autopilot
Old 02-12-2013, 08:44 AM   #1
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Heading for Retirement on Autopilot

http://www.nytimes.com/2013/02/12/bu...ance.html?_r=0


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JANE DOE never noticed as hundreds of dollars disappeared from her paychecks since she was hired two years ago.

Her company started by taking 3 percent out of every check to put into her 401(k) retirement plan. After one year, Ms. Doe -- who is fictitious but typical -- got a 1.5 percent raise, but the company diverted most of that into her 401(k). The same thing happened the following January.

The money has been going into an investment called a target-date fund, which Ms. Doe never specifically chose. That fund is programmed to select an array of stocks, bonds and other asset categories based on Ms. Doe's age. As she grows older, the percentages will gradually shift, without any instructions from Ms. Doe......
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Old 02-12-2013, 08:57 AM   #2
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"JANE DOE never noticed as hundreds of dollars disappeared from her paychecks since she was hired two years ago."



Jane Doe must be an idiot... I can tell you that almost everybody I know would notice if there check was different by mear cents.... so unless they started her on this with her first paycheck, most (intelligent) people would probably notice...
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Old 02-12-2013, 09:06 AM   #3
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The main point of this article is the progression of 401k plans in the work force...
  • When they first came into being you had to opt into them...
  • Then they changed the rules and the company could automatically put you in the plan for the amount that would get a full company match, money went to the most conservative choice. You had to opt-out if you did not want to be invested.
  • Now, they can put your money in a target-date plan. you can still opt-out if you desire.
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Old 02-12-2013, 09:18 AM   #4
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I like the automatic "opt in" and default investment, but not the lack of information and education offered by the company or engagement from Jane Doe. But it's the final nail in the coffin of the BD plan.

FYI the UK has just introduced legislation to mandate all employers offer at least a DC opt in retirement plan to full time employees. There are mandated minimum contributions from the employer and the employee, but the employee does have the option to actively opt out. The National Employment Savings Trust has been set up to provide DC plans if the company does not have it's own qualifying plan. The bottom line is that by 2018 everyone employed in the UK will be automatically enrolled in a DC plan with at least 3% employer contribution and a minimum of 8% total contribution required. This will be used as the earnings related part of retirement funding. The UK equivalent of SS has been decoupled from earnings and everyone will get a state pension based on the number of years of contributions rather than wages. This will substantially increase the state pension of the low earners.

NEST home | UK employer pension scheme | NEST pensions
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Old 02-12-2013, 11:26 AM   #5
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It seems to me that if Jane Doe was so clueless that she didn't notice the deductions from her pay and raises that she would have been equally clueless and not opted-in to a 401k under the old approach - so perhaps the opt-out approach is better for clueless people who wouldn't consciously save for their retirement.
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Old 02-12-2013, 02:08 PM   #6
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It seems to me that if Jane Doe was so clueless that she didn't notice the deductions from her pay and raises that she would have been equally clueless and not opted-in to a 401k under the old approach - so perhaps the opt-out approach is better for clueless people who wouldn't consciously save for their retirement.
No question that this is true, IMHO.

I see it as similar to the other automatic deductions for income taxes, SS, Medicare, etc.
If most people didn't get those taken out of their pay for them, they would be blindsided at the end of every year with enormous bills they hadn't planned for.
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Old 02-12-2013, 04:27 PM   #7
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My megacorp does not have the auto-enrollment. But one of the managers effectively did this. He strong armed one of the young engineer new-hires into opting in to get the full match (4%). She would NOT have done it. She's approaching 30 and would have no retirement savings if her boss hadn't made it sound like it was not optional.

I'm sure he danced the line of legal/overstepping... but she's better off for it. She's a self admitted shop-o-holic.
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Old 02-12-2013, 04:34 PM   #8
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She's approaching 30 and would have no retirement savings if her boss hadn't made it sound like it was not optional.
You buy them books, send them to school, and all they do is eat the pages.
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Old 02-12-2013, 04:51 PM   #9
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Reminds me of Shaq O'Neal when he was asked how he felt about paying FICA.

"FICA? Who the hell is FICA and why am I paying him all this money every paycheck
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Old 02-12-2013, 05:10 PM   #10
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Originally Posted by SumDay

You buy them books, send them to school, and all they do is eat the pages.
I was reading a synopsis of a new personal finance book, that basically exposes the flaws of listening to personal finance gurus, which is also mentioned often here in our forum. One other interesting point was it mentioned educating students on personal finance is a waste of time. I believe the reason was the people don't put into practice what they have learned and then forget it anyways.
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Old 02-13-2013, 03:38 PM   #11
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Originally Posted by rodi View Post
My megacorp does not have the auto-enrollment. But one of the managers effectively did this. He strong armed one of the young engineer new-hires into opting in to get the full match (4%). She would NOT have done it. She's approaching 30 and would have no retirement savings if her boss hadn't made it sound like it was not optional.

I'm sure he danced the line of legal/overstepping... but she's better off for it. She's a self admitted shop-o-holic.
If that is the case then unless she changes her ways I don't believe her 401k will last long once she retires.
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Old 02-13-2013, 08:08 PM   #12
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I like the automatic "opt in" and default investment, but not the lack of information and education offered by the company
Be careful what you wish for. A former employer had "education" as part of the 401k package, so twice a year we all got seminars about how investing and retirement were too complicated for engineers and we better call the 401k broker for all our investment and insurance needs. Mandatory for a couple years, until they finally allowed us to opt-out of at least the talks.
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Old 02-13-2013, 09:13 PM   #13
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Be careful what you wish for. A former employer had "education" as part of the 401k package, so twice a year we all got seminars about how investing and retirement were too complicated for engineers and we better call the 401k broker for all our investment and insurance needs. Mandatory for a couple years, until they finally allowed us to opt-out of at least the talks.
Back in around 2000 the scientists and engineers at my old company got regular talks from management about us growing by 14% every year. We pointed out something to do with grains of rice and a chess board.......it didn't go over well.
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Old 02-13-2013, 11:07 PM   #14
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[QUOTE=Texas Proud;1283073 Jane Doe must be an idiot... I can tell you that almost everybody I know would notice if there check was different [/QUOTE]

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