Connect with us

Personal Finance

401(k) auto-enrollment less effective than expected, study says

Published

2 years ago

on

Images By Tang Ming Tung | Digitalvision | Getty Images

Employers are increasingly putting workers’ 401(k) plan savings on autopilot.

But the positive impact of automated retirement savings is more muted than initially thought, new research finds.

Previously “underexamined” factors — like workers cashing out 401(k) balances when they leave a job — “meaningfully reduce” the long-term impact of policies like automatic enrollment and automatic escalation, according to a new paper published by the National Bureau of Economic Research.

Importantly, some of the paper’s co-authors — James Choi of Yale University, and David Laibson and John Beshears of Harvard University — are behavioral economists who pioneered early research into the positive effects of automatic enrollment.

“They are like the OGs [originals],” said David Blanchett, head of retirement research at PGIM, an investment manager. “These are the people who’ve been doing research on this topic now for decades.”

‘Not as positive as we had previously thought’

Automated savings has been a cornerstone of 401(k) policy since Congress passed the Pension Protection Act of 2006.

Policies like auto-enrollment and auto-escalation aim to boost the size of employees’ nest eggs, by automatically enrolling workers in their company 401(k) and then raising (or “escalating”) their savings rate over time.

In this way, people’s tendency towards inertia works in their favor.

401(k) doesn't seem to have the same fanbase that social security has, says Allison Schrager

About two-thirds of 401(k) plans were using auto-enrollment as of 2022, according to survey data from the Plan Sponsor Council of America, a trade group. Of them, 78% used auto-escalation.

Overall, their effect on savings is positive, “just not as positive as we had previously thought based on the research we had done before,” Choi said in an interview.

The group’s initial research didn’t track results for workers who left jobs where they’d been automatically enrolled.

This research update sought to do a broader analysis, incorporating factors like job turnover, Choi said.

More from Personal Finance:
You may be paying fees for cash back at retailers
Why some young adults are disconnected from the job market
The benefits of giving to a 529 college savings plan

Overall, Choi and his co-authors recently found that auto-enrollment raised average 401(k) contribution rates by 0.6 percentage points of income over workers’ careers.

That’s a 72% decrease in effectiveness from the 2.2-percentage-point boost that was extrapolated by the “results of early pioneering papers,” the paper said.

“You’re talking 1.6% of income less saved per year,” Choi said. “If you were to just add that up over a 40-year career, you’re talking more than a half year of income saved.”

When also accounting for compounding interest on those savings, it can amount to a “quite substantial” financial difference, he added.

The impact of 401(k) leakage

The disparity is largely a function of so-called “leakage” from 401(k) plans. meaning the early withdrawal of funds before retirement.

About 40% of workers who leave a job cash out their 401(k) plans each year, according to the Employee Benefit Research Institute. Such leakage amounted to $92.4 billion in 2015, according to EBRI’s most recent data.

Workers may withdraw 401(k) plan funds before their employer match is fully vested, meaning they’d forgo that free money.

Additionally, just 43% of workers defaulted into auto-escalation of their savings rates ultimately accepted a higher contribution rate after one year, the National Bureau of Economic Research paper found.

By comparison, early research conducted by behavioral economists like Richard Thaler and Shlomo Benartzi estimated that share around 85%.

Job turnover also complicates auto-escalation in addition to auto-enrollment, PGIM’s Blanchett said.

For example, a worker’s escalated contribution rate may reset at a lower savings rate if they were to join a new employer’s 401(k) plan.

While auto-escalation isn’t necessarily a reliable way to get people to save more money, auto-enrollment has proven “very successful,” Blanchett said.

Maximizing your Social Security benefits

He believes the effectiveness of auto-enrollment shouldn’t be judged based on 401(k) leakage, which is a separate policy issue, he said.

“I think auto-enrollment does a spectacular job at getting individuals in the plan,” Blanchett said. “But we still have this massive leakage issue. It still exists whether you have auto-enrollment or you don’t.”

That said, there’s room for improvement with automated savings.

“I’d like us to get to a point where 7% or 8% is the median default savings rate,” Blanchett said.

When coupled with an employer match, the typical worker would be saving 10% or more of their salaries, a bar workers should generally strive for, he said.

Related Topics:
Continue Reading

Personal Finance

$20,000 Caution Bond Requirement for US Visa Applications imposed on 50 Countries

Published

7 days ago

on

August 8, 2026

By

The United States Department of State has officially implemented a revised visa policy introducing a mandatory posting requirement for caution payments of up to $20,000 on select foreign travel applications. Under the updated regulatory framework, consular officials are authorized to require temporary nonimmigrant visa applicants from targeted foreign countries to post a refundable financial bond of $20,000 as a condition for visa issuance. The policy mechanism is designed to address diplomatic concerns regarding high overstay rates among temporary visitor, business, and educational visa categories.

The caution bond pilot program applies selectively to foreign nationals from designated countries whose diplomatic entities record historical visa overstay rates exceeding established federal thresholds. Under administrative guidelines published by the State Department, the full financial deposit is posted directly to a dedicated federal escrow account prior to final visa issuance. The entire caution payment is automatically refunded to the applicant upon verified proof of timely departure from the United States in strict compliance with the authorized duration of stay. Conversely, failure to depart within the legal timeframe results in full forfeiture of the posted financial bond to the United States government.

Diplomatic representatives and travel policy experts have expressed varying perspectives regarding the operational implementation of the caution bond system. Administration officials emphasize that the measure serves as an effective, market-based incentive to enforce international travel compliance and preserve domestic immigration security standards. However, international trade organizations and foreign diplomatic missions have raised concerns regarding the financial burden imposed on legitimate business travelers, foreign students, and commercial partners from developing nations.

The United States finalized the rule to make the temporary visa bond program permanent, taking effect on August 3, 2026. The updated permanent regulation replaces the prior 12-month pilot, eliminates the lowest $5,000 tier, and raises the maximum required bond amount to $20,000 for specific B-1/B-2 business and tourist visa applicants.

Here is the list of the 50 countries on the list as o August 3, 2026

African Nations (31 Countries)

  • Algeria
  • Angola
  • Benin
  • Botswana
  • Burundi
  • Cabo Verde (Cape Verde)
  • Central African Republic
  • Côte d’Ivoire (Ivory Coast)
  • Djibouti
  • Ethiopia
  • Gabon
  • The Gambia
  • Ghana
  • Guinea
  • Guinea-Bissau
  • Lesotho
  • Malawi
  • Mauritania
  • Mauritius
  • Mozambique
  • Namibia
  • Nigeria
  • São Tomé and Príncipe
  • Senegal
  • Seychelles
  • Tanzania
  • Togo
  • Tunisia
  • Uganda
  • Zambia
  • Zimbabwe

Asian & Eastern European Nations (11 Countries)

  • Bangladesh
  • Bhutan
  • Cambodia
  • Georgia
  • Kyrgyzstan
  • Mongolia
  • Nepal
  • Papua New Guinea
  • Tajikistan
  • Turkmenistan
  • Uzbekistan

Caribbean & Latin American Nations (5 Countries)

  • Antigua and Barbuda
  • Cuba
  • Dominica
  • Grenada
  • Venezuela

Oceanian Nations (3 Countries)

  • Fiji
  • Tonga
  • Vanuatu

Continue Reading

Personal Finance

Next-Generation Retirement Planning: Managing Longevity Risk and Variable Income Streams

Published

1 week ago

on

August 7, 2026

By

Retirement planning strategies are evolving in 2026 to address increased life expectancies, shifting dynamic market conditions, and the transition away from traditional defined-benefit pensions. Individual investors and financial advisors are abandoning rigid retirement models in favor of flexible, multi-asset strategies designed to mitigate longevity risk and preserve purchasing power over multi-decade retirement horizons.

Mitigating Longevity Risk with Dynamic Asset Allocation
As average life expectancies extend past eighty-five years, one of the primary financial risks facing retirees is outliving their accumulated wealth. Traditional fixed income allocations—such as the standard 60/40 equity-to-bond portfolio—are being reevaluated to ensure portfolios generate sufficient capital growth alongside reliable income.

Financial planners recommend maintaining a meaningful equity allocation throughout retirement to offset long-term inflation erosion. High-dividend equity funds, global real estate investment trusts (REITs), and inflation-indexed Treasuries are combined to create diversified portfolios that deliver both growth and income stability.

The Transition to Dynamic Withdrawal Strategies
The classic “4% safe withdrawal rule” is increasingly replaced by dynamic withdrawal strategies that adapt annually based on market performance. Under a dynamic withdrawal framework, retirees adjust their annual distribution rates within pre-set caps and floors:
– Market Upside: During strong market returns, retirees can increase discretionary spending or fund family legacy gifts.
– Market Downturns: During market pullbacks, spending distributions are temporarily reduced to prevent sequence-of-returns risk and preserve core investment principal.

Guaranteed Lifetime Income Options and Deferred Annuities
To establish a guaranteed baseline for essential living expenses, individuals are incorporating modern fixed-indexed and deferred longevity annuities into their broader retirement architectures. Modern annuity structures offer competitive return caps, transparent fee schedules, and inflation-adjustment options.

By funding essential expenses—such as housing, healthcare, and insurance—with guaranteed income streams from Social Security, pensions, and annuities, retirees can manage discretionary investment portfolios with greater flexibility and lower emotional stress during market volatility.

Actionable Steps for Future Retirees
1. Calculate Baseline Retirement Expenses: Determine fixed living costs and map guaranteed income sources to cover essential expenditures.
2. Adopt Flexible Withdrawal Rules: Implement dynamic spending rules to protect investment principal against market downturns.
3. Incorporate Inflation-Protected Assets: Maintain exposure to dividend-growing equities and inflation-indexed bonds to safeguard long-term purchasing power.

Continue Reading

Personal Finance

Building Generational Wealth: Family Governance, Estate Tax Optimization, and Asset Protection

Published

2 weeks ago

on

August 1, 2026

By

As the largest intergenerational transfer of wealth in history accelerates, high-net-worth families, entrepreneurs, and individual investors are placing heightened emphasis on comprehensive estate planning, family governance, and asset protection. Preserving capital across generations requires a balanced approach combining tax-efficient legal structures with open family communication and financial literacy education.

Optimizing Estate Tax Exemptions and Trust Structures
With potential modifications to federal estate tax exemption thresholds on the horizon, proactive estate planning is essential for high-net-worth households. Estate planning attorneys and wealth advisors are establishing multi-generational trust structures to transfer wealth efficiently while minimizing estate and gift tax exposure.

Popular structural strategies include:
– Irrevocable Life Insurance Trusts (ILITs): Utilizing life insurance proceeds to provide liquidity for estate tax obligations without expanding the taxable estate.
– Grantor Retained Annuity Trusts (GRATs): Transferring rapidly appreciating assets to beneficiaries with minimal gift tax consequences.
– Dynasty Trusts: Preserving wealth across multiple generations while providing long-term asset protection from creditor claims and legal liabilities.

Establishing Family Governance and Financial Education
Legal and financial structures alone cannot guarantee long-term wealth preservation without effective family governance. Financial advisors report that a significant percentage of multi-generational wealth dissipation stems from lack of communication and inadequate financial preparation among heir generations.

Families are establishing formal family governance frameworks, including periodic family meetings, written mission statements, and structured philanthropic foundations. Involving younger family members in charitable grant-making and investment discussions fosters financial stewardship and prepares heirs to manage family assets responsibly.

Digital Asset Custody and Legacy Planning
In today’s modern economy, estate planning must extend beyond physical real estate and traditional brokerage accounts to encompass digital assets. Comprehensive estate plans now include detailed inventories and legal access protocols for corporate domain names, intellectual property, digital media rights, and cryptocurrency holdings.

Fiduciaries and estate executors should be provided with secure, encrypted access mechanisms and clear legal authority to manage and transfer digital holdings in accordance with the owner’s estate directions.

Practical Steps for Legacy Planning
1. Review and Update Estate Documents: Ensure wills, revocable trusts, and power-of-attorney designations accurately reflect current family structures.
2. Establish Structured Trusts: Utilize irrevocable trusts to protect assets from creditors and minimize future estate tax liabilities.
3. Create a Digital Estate Inventory: Document access protocols and legal permissions for all online accounts, intellectual property, and digital assets.

Continue Reading

Trending