Do Automatic Savings Policies Actually Increase Savings?
Automatic enrollment and default contribution rate auto-escalation have become widely adopted in retirement savings plans on the belief that these nudges increase savings. We find that previous estimates of their savings effects are overstated. Our new estimates at eight companies incorporate the facts that employee turnover is high, a large percentage of 401(k) balances leave the retirement savings system upon employment separation, and employees may opt out of the auto-escalation default. The net savings rate increase generated by automatic enrollment, default auto-escalation introduced on top of pre-existing automatic enrollment, and the simultaneous introduction of automatic enrollment and default auto-escalation is only 0.5%, 0.3%, and 0.7% of income per year, respectively, on average. Employees with positive balances under automatic policies withdraw a higher proportion of these balances upon separation, and only 37% of those with an auto-escalation default accept it at their first auto-escalation date.
Related
More from NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Retirement and Disability, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
