We know retirement planning is hard, and not just because many people have a tough enough time paying their expected bills and expenses. It turns out that our brains are wired to pay more attention to earning money than to putting it away. This explains why only 29 percent of Americans have six months of expenses saved, and about 55 million have nothing at all, not even a few dollars stuffed under the mattress.
We also know retirement planning is complicated, and not just in the “I’m no good at math” sense. Very few folks could explain how annuities or compound interest work. Even if they can, the very idea of people—especially the young or middle-aged—having to contemplate their own mortality or anticipate how much monthly income they’ll require 30–50 years from now is existentially daunting.
But what if all the guesswork was done for you and you didn’t have to think twice about your retirement security because your employer automatically enrolled you in a retirement plan? Some 401(k)-type plans have automatic enrollment which means once you start employment, you are automatically contributing a percentage of your pay to the plan unless you opt out. If you choose (or have chosen) a public service career with a Colorado PERA employer, a significant chunk of financial angst is alleviated because PERA handles much of the investing and financial forecasting for you.
Defined benefit (DB) plans, like the one offered by PERA, require participants to deduct set amounts from their paychecks. Additionally, employers make regular and prescribed contributions from their payrolls and PERA investment professionals—with occasional help from outside experts—make investment decisions for members. That money grows over time to provide lifelong income that helps with both financial security and peace of mind.
Contrast this with the 401(k) or defined contribution (DC) plans that are prevalent throughout the rest of the employment world. Unless these plans offer automatic enrollment, you have to make an active choice to start contributing. These plans can also be more expensive than DB plans, and most importantly, they require you to monitor your own investments or pay someone else to do it. This isn’t necessarily bad, and plenty of people prefer to have that control; PERA even offers its own range of voluntary DC options to supplement the DB Plan. But if you are hesitant to get started because of lack of investing know-how or you’re unsure how much you can afford to contribute, you may put enrolling in this type of plan on the back burner. When it comes to planning for retirement, waiting even one year can be detrimental to your future savings.
Another thing we know about retirement plans, especially for younger workers, is that participation in them rises when simple features such as automatic enrollment are available. Many concerns about retirement planning can be addressed simply by eliminating obstacles for enrollment. So if you aren’t already committed to a public sector career, maybe it’s time to reconsider. Or perhaps inquire with your current employer as to whether an automatic enrollment feature in your voluntary DC plan could be made available. Your future may depend on it.