Advisers and employers have embraced auto enrollment over the last several years as they have looked to help their clients and employees save for a successful retirement. A “successful” retirement is defined as a 401(k) account balance large enough that when combined with Social Security benefits, provides an income replacement rate of 80%.
As employers have rolled out their auto enrollment to employees they have tended to start at 3%. Employers traditionally have used 3% as the default percentage because employers were afraid of starting at a too-high percentage. While this helped engage employees in the plan, it did not alleviate the issue of retirement income adequacy.
